Investigating Inconsistencies and Challenges of Indirect Taxation in Bangladesh. – A study for the reform of NBR as internat

Abstract

This thesis, titled “Investigating inconsistencies and challenges of indirect taxation in Bangladesh. – A Study for the Reform of NBR as per International Taxation Standards,” explores the inefficiencies in the country’s VAT and tax practices and their impact on businesses. It provides a critical assessment of the National Board of Revenue (NBR) policies, comparing them with international taxation standards and suggesting necessary reforms. Advance Tax (AT) under VAT Act, 2012: Manufacturers and importers in Bangladesh face high Advance Tax (AT) rates (3%-5%), increasing their financial burden. Businesses struggle to recover the tax due to the complex refund process, impacting cash flow. Even NBR officials acknowledge the inefficiencies of AT and support reform. VAT Deduction at Source (VDS): Many businesses, especially small and informal enterprises, do not comply with VDS requirements. Registered companies are forced to pay VDS from their own funds when suppliers refuse to comply, creating an unfair burden. Businesses have called for greater enforcement and awareness programs by NBR to address this issue. High VAT Rate & Multiple Slabs: Bangladesh follows a multi-tier VAT system, with rates ranging from 4% to 15%, along with supplementary duties. This complexity increases compliance costs, reduces competitiveness, and leads to tax evasion. A comparison with other countries suggests that simplifying VAT slabs could improve compliance and attract investment. Compound Taxation & Tax-on-Tax Issues: Businesses in Bangladesh face multiple layers of taxation, increasing the effective tax rate to over 150% in some cases. Taxes such as Supplementary Duty, Customs Duty, and VAT are calculated sequentially, inflating costs. This discourages investment and increases consumer prices. To address these challenges, the study proposes several key reforms: simplifying the VAT structure by reducing multiple slabs, introducing an efficient adjustment and refund mechanism for AT, enforcing VDS compliance through strict penalties, eliminating tax-on-tax practices to lower the effective tax rate, and enhancing digital tax systems for streamlined filing and transparency. The findings underscore the urgent need for Bangladesh to align its tax framework with international best practices. A simplified, transparent, and efficient optimal taxation system would not only alleviate financial pressures on businesses but also foster compliance, boost competitiveness, and increase government revenue. This research serves as a valuable resource for policymakers, businesses, and tax authorities striving to create a business-friendly taxation environment in Bangladesh.