VAT Target Jumps 70pc Despite Repeated Failures, Raising Inflation, Business Fears

Ignoring repeated revenue shortfalls and mounting criticism from economists, business leaders and former tax officials, the government has set an ambitious target of nearly 70 per cent growth in Value Added Tax (VAT) collection for the current fiscal year (FY2026-27), raising fresh concerns over higher consumer prices, increased pressure on businesses and the feasibility of achieving the goal. 

The National Board of Revenue (NBR) aims to collect Tk 257,000 crore in VAT this fiscal year, up sharply from Tk 155,940 crore collected in FY2025-26. The target represents one of the steepest year-on-year increases in the country's tax history, despite the revenue authority falling far short of its previous goal. 

Last fiscal year, the NBR collected nearly Tk 30,000 crore less than its revised VAT target of Tk 186,110 crore, while the country's overall revenue shortfall widened to around Tk 93,000 crore.  To bridge the gap, the NBR is banking heavily on digital reforms to widen the tax base rather than increasing tax rates. 

Officials said the highest priority has been given to expanding VAT coverage through technology-driven initiatives, including instant VAT registration, mandatory online VAT return submission, e-invoicing, Electronic Fiscal Devices (EFDs) and automated monitoring systems. The authority believes these measures will curb tax evasion and bring thousands of businesses into the formal VAT network.

Economists, however, remain sceptical, arguing that digitalisation alone cannot generate a 70 per cent surge in VAT receipts within a single year. They point out that economic activity, household consumption, industrial output and imports are not growing at a pace that would justify such an extraordinary rise in indirect tax collection.

Tax analysts also warn that VAT, being an indirect tax, is ultimately paid by consumers. A sharp increase in collection targets could therefore encourage businesses to pass on higher tax costs through increased product prices, adding further fuel to inflation at a time when households are already struggling with rising living costs.

Former tax officials cautioned that unrealistic revenue targets often force field-level officials to squeeze existing taxpayers instead of identifying new ones, increasing the risk of harassment, disputes and arbitrary enforcement. Such practices, they said, could further weaken investor confidence and undermine Bangladesh's business climate.

Former NBR Chairman Abdul Majid said the previous year's revenue target remained unattainable because of sluggish economic conditions.

"Now a new government is in office and the economy has shown signs of recovery. The NBR must make every effort to achieve the target. However, without comprehensive automation across the tax system, it will be impossible to realise such an ambitious goal," he told the Daily Observer.

Kazi Sazedur Rahman, Managing Director of KPC Group, warned that relying on existing taxpayers instead of broadening the tax base would inevitably increase business costs.

"If the government focuses on collecting more from those already paying taxes rather than bringing new taxpayers into the system, businesses will eventually transfer those additional costs to consumers through higher product prices," he said.

Echoing the concern, SM Nazer Hossain, Vice-President of the Consumers Association of Bangladesh (CAB), said the government's growing dependence on indirect taxation would disproportionately hurt ordinary people.

"VAT is ultimately borne by consumers. For years, experts have urged the government to reduce dependence on indirect taxes and strengthen direct taxation. Instead, the authorities have sharply raised the VAT target, which is likely to push up the cost of living and place additional financial pressure on households," he said.

He also questioned the overall Tk 605,000 crore revenue target for FY2026-27, describing it as overly ambitious. According to him, revenue goals should be increased gradually in line with economic growth rather than through a single, steep jump.

"As the government relies more heavily on indirect taxes to meet its ambitious revenue target, the burden will ultimately fall on the public. Unless the tax base is significantly expanded, people are likely to face even greater financial hardship as living costs continue to rise," he added.