Revenue shortfall forces U-turn on VAT returns

A deepening revenue shortfall has forced the government to reverse its decision to allow large businesses to file VAT returns every three months, with the monthly return system set to return soon.

The Cabinet on Monday approved a draft amendment to the Value Added Tax and Supplementary Duty Act, 2012, paving the way for restoration of the monthly VAT return and payment system.

An ordinance is expected to be issued shortly to bring the change into effect, according to officials of the National Board of Revenue (NBR).

The move comes as the government struggles to mobilise revenue, collecting around Tk29,161 crore less than its target in the first two months of the current fiscal year (FY2026-27). Collection was also lower than in the corresponding period of the previous fiscal year.

NBR officials said shifting the VAT tax period from one month to three months in the latest budget had slowed the flow of VAT receipts into the treasury.

Under the three-month system, large businesses can submit their VAT returns and pay the tax at the end of each quarter instead of making monthly payments. As a result, a substantial amount of VAT remains unpaid in the government account until the end of the three-month period.

“The change in the tax period has affected the monthly flow of VAT revenue,” an NBR official said, adding that restoring monthly returns would help ensure a more regular flow of funds into the treasury.

Under Section 64 of the VAT and Supplementary Duty Act, registered businesses are required to submit VAT returns and pay the applicable tax within 15 days of the end of each tax period, unless otherwise permitted for special reasons.

The tax period was traditionally one month before the government extended it to three months in the latest budget.

The proposed amendment will restore the one-month period, effectively reversing the earlier policy within months of its introduction.

The urgency of the move is underlined by the government’s ambitious revenue target for the current fiscal year.

The government has set a revenue collection target of Tk604,000 crore for FY2026-27, requiring the VAT department alone to generate an average of around Tk20,000 crore a month.

But VAT collection stood at only around Tk9,200 crore last month-less than half the monthly average required to remain on track for the annual target.

VAT contributes around 37 per cent of the country’s total revenue, making the performance of the VAT wing critical to the government’s overall fiscal position.

NBR officials said the delayed collection of VAT from large businesses was one of the factors aggravating the revenue squeeze, although broader weaknesses in tax administration and collection also remain a concern.

The revenue shortfall is putting increasing pressure on the government’s ability to finance regular expenditure and meet other fiscal obligations.

Officials expect the restoration of monthly VAT returns to improve cash-flow management by bringing tax payments into the treasury more regularly instead of allowing liabilities to accumulate for three months.