Bangladesh entered 2026 in a difficult fiscal position. The National Board of Revenue (NBR) had closed FY25 with a record shortfall of approximately Tk 92,625 crore against its revised target, and the country’s tax-to-GDP ratio slid to around 6.5–6.8%, one of the lowest in the world for an economy of comparable size. Against that backdrop, the first half of 2026 has been dominated by three parallel processes: the rapid digitisation of tax administration through the eVAT platform, a major restructuring of the VAT base in the FY2026-27 budget, and a contested renegotiation of the terms of IMF support that placed the uniform 15% VAT reform at the centre of international attention.
1. The eVAT System: Digitising Tax Administration
The platform now known as eVAT had been formally renamed and consolidated by NBR in late December 2025, becoming the mandatory gateway for all online VAT activities. In early January 2026, NBR Chairman Md Abdur Rahman Khan used the launch events of successive new modules to articulate a consistent theme: full automation of the revenue system, with no tolerance for paper-based processes.
The headline initiative was the launch of the automated online VAT refund system on 7 January 2026. NBR Chairman Khan inaugurated the system in person, initiating the first batch of refunds — Tk 45.35 lakh transferred directly to three Dhaka-based businesses — through the Bangladesh Electronic Fund Transfer Network (BEFTN). The system connects to the Finance Division’s iBAS++ platform, enabling direct electronic transfers to taxpayers’ nominated bank accounts after approval by the relevant VAT commissionerate. The NBR said refunds that had previously taken six months or more could now be processed within 10 working days. As of the launch event, 115 refund applications amounting to Tk 124.49 crore had already been submitted through the system.
However, businesses were cautious. Industry voices noted persistent structural issues: one steel importer said he had never received a refund despite generating a regular advance tax surplus. Broader concerns about processing delays and system stability persisted into the mid-year, and the NBR acknowledged the system was an initial digitisation of the existing manual procedure, with legal simplification to follow.
A complementary module launched in early January allowed businesses to upload historical paper-based VAT returns into the eVAT system without penalty, with a deadline set for 31 March 2026. This addressed a practical compliance barrier: many businesses had been unable to file online returns because their prior paper returns had not been entered into the system by tax offices, triggering automatic penalties.
On 11 January 2026, NBR launched large-value corporate tax and VAT payments via bKash and other mobile financial service (MFS) providers including Nagad, Rocket, CellFin and Upay. The innovation extended mobile payment capability — previously available only for smaller individual transactions — to corporate payments ranging from Tk 100 crore to Tk 400 crore or more. Payments are available 24/7 without banking-hour constraints, and the NBR chairman called for the abolition of pay orders and crossed cheques as an obsolete mechanism.
The NBR set a 30 June 2026 deadline for all businesses to migrate to mandatory online VAT return submission through eVAT, with 100% online compliance intended from the start of FY2027. From April, businesses reported ongoing technical difficulties with the online return system, prompting the NBR to extend the April filing deadline to 23 April due to a combination of public holidays and system problems. NBR’s broader digitisation agenda included plans for automated SME VAT software that would generate returns automatically from simple receipt and payment data.
Registration data showed strong momentum. A special nationwide campaign in December 2025 resulted in 131,000 new VAT registrations, against a target of 100,000, bringing the total number of businesses with Business Identification Numbers (BINs) to approximately 8 lakh. The NBR chairman stated his ambition to bring at least 1 crore businesses under VAT registration — a tenfold increase — citing the latest Economic Census’s estimate of 1.17 crore economic units in Bangladesh, over 99% of which are cottage, micro and small businesses.
2. Budget FY2026-27: Structural Overhaul of the VAT Base
Finance Minister Amir Khosru Mahmud Chowdhury presented the FY2026-27 budget in parliament on 12 June 2026 — the first budget of the BNP government in two decades. The Tk 9.38 trillion budget set an NBR revenue target of Tk 604,000 crore, a 20% increase over the previous year. The VAT components reflected both a desire to widen the base and a pragmatic recognition that fiscal conditions remained fragile.
16 retail sectors brought under fixed VAT. Finance Minister Chowdhury announced that 16 retail sectors previously outside the VAT net would be brought under a fixed VAT regime from FY2027. These include garment and clothing retailers, shoe retailers, and furniture stores, among others. The move was framed as part of a three-pronged economic resilience strategy the minister called Recovery and Stabilisation, Restoration, and Reconstruction for Acceleration.
BIN mandatory for bank accounts and licences. The budget formalised the proposal, previously discussed during pre-budget consultations, to make BIN registration mandatory for opening or maintaining business bank accounts, obtaining trade licences, accessing loans, merchant accounts for mobile financial services, utility connections, and vehicle registration. The measure targets businesses with trade licences that are not registered for VAT, and is intended to dramatically expand the formal tax base.
Turnover tax overhauled. The 4% turnover tax was replaced by a fixed NBR-set amount capped at BDT 200,000, with the turnover ceiling raised to BDT 5 million and quarterly returns made the default. This was presented as simplifying compliance for smaller businesses. Startups, technology-based businesses, and freelancers and content creators were offered full VAT exemption on local transactions, service imports and space rental until 2035, along with a zero percent turnover tax rate.
Input tax credit changes. Labour costs were removed from the negative list for input tax credit purposes. However, downstream sellers face new ITC restrictions where goods were exempt at the manufacturing stage. All imported services — except those listed on the First Schedule — are now taxable at 15%, with banks and financial institutions responsible for withholding VAT and issuing challans.
Sectoral VAT changes. VAT at the manufacturing stage on air conditioners and refrigerators was cut from 15% to 7.5%, extended through 2030. Gold shifted from a 5% VAT to a fixed BDT 2,500 per bhori, while gold jewellery source tax fell from 5% to 0.5%, prompting the Bangladesh Jewellers Association (Bajus) to confirm reductions in gold ornament prices under the new VAT-inclusive system as of June 2026. VAT and import-stage taxes on fertilisers and pesticides were fully exempted to support agriculture. VAT on steel rods increased from BDT 150 to BDT 350 per unit. The SIM card tax of Tk 300 per connection was scrapped entirely. VAT was proposed on 20 previously exempt imported products.
Penalties and appeals eased. ITC-related penalties and appeal pre-deposit thresholds were reduced, while new penalties were introduced specifically targeting fake stamp and band rolls and VAT software tampering. A six-month interest-waiver scheme was announced for legacy VAT demands.
3. The IMF Dimension: A Programme in Crisis
The relationship between Bangladesh and the IMF has been one of the most consequential stories of 2026, and it directly shaped the VAT reform agenda. The original $4.7 billion IMF loan (later expanded to $5.5 billion) had been agreed under the previous Awami League government. Key conditions included implementing a uniform 15% VAT rate, eliminating tax exemptions, and replacing broad energy and fertiliser subsidies with targeted cash transfers.
By April 2026, the IMF had withheld the next loan tranche — approximately $1.3 billion — citing insufficient progress on reform commitments including revenue mobilisation, banking sector restructuring, and subsidy rationalisation. The NBR had fallen short of its nine-month FY26 collection target by nearly Tk 1 lakh crore. Finance Minister Khosru had publicly indicated at IMF-World Bank Spring Meetings in Washington that the country could not comply with conditions it considered unrealistic under current economic and political circumstances.
On 21 May 2026, in a virtual meeting between Minister Khosru and IMF Deputy Managing Director Nigel Clarke, Bangladesh formally proposed exiting the existing $5.5 billion programme and negotiating a fresh $5–6 billion credit package under modified terms. The government’s position was that the previous programme had been negotiated by a different government, and that domestic political and economic realities required a more realistic, sequenced reform timeline. Officials confirmed Bangladesh had received $3.8 billion across five tranches and that any undisbursed balance would be returned. An IMF mission was expected in Dhaka in July or August 2026 to discuss the framework for a new programme.
The IMF confirmed in early June 2026 that the previous loan settlement was no longer viable given Bangladesh’s changed political and macroeconomic environment. IMF Communications Director Julie Kozack said the Fund saw opportunities to work with Bangladesh on a new programme but that a fresh arrangement would need to be discussed. The uniform 15% VAT, exemption rationalisation, and subsidy reform remain the IMF’s stated priorities for any new programme, but the BNP government’s position is that it will not accept conditions it regards as contrary to public interest.
4. Revenue Shortfall and Structural Weaknesses
Bangladesh’s tax-to-GDP ratio fell to approximately 6.5–6.8% in FY25, described by the World Bank as less than half the 15% minimum considered necessary for stable development financing, and the lowest in South Asia. Provisional data for July–March of FY26 showed NBR collections of Tk 2.87 lakh crore — an 11% rise year-on-year — but well below the pace required to meet the full-year target of Tk 5.54 lakh crore. By April 2026, the revenue deficit for the first nine months of FY26 had reached approximately Tk 1 lakh crore.
Of the July–March collection, VAT from domestic activity was the largest contributor at 38%, rising 13.66% year-on-year to Tk 1.09 lakh crore. Direct taxes accounted for 33.5% and import tariffs for a further 7.77%. Analysts were unanimous that the remaining Tk 2.60 lakh crore required in the final quarter was unachievable, maintaining a decade-long pattern of significant shortfalls against ambitious targets.
The structural problem, as analysts and the World Bank have noted, is not primarily one of tax rates — Bangladesh’s statutory rates are comparable to regional peers — but of a complex, multi-rate system with large exemptions, an 84% informal workforce contributing negligibly to direct tax, and a small compliant sector bearing a disproportionate share of the burden. Tax expenditure (revenue forgone from exemptions and incentives) is estimated to approach the value of actual tax collection.
Institutional reforms are underway. The Revenue Policy and Revenue Management Ordinance of May 2025 separated the former NBR into a Revenue Policy Division and Revenue Management Division, addressing a long-standing conflict of interest in having one body both draft and enforce tax rules. Implementation has faced resistance, including a six-week officer strike, but the structural framework remains in place.
5. Compliance and Anti-Evasion
On 26 April 2026, NBR Chairman Khan announced plans to introduce a QR code system on packaged goods, beginning with tobacco products before expanding to soap, shampoo, bottled water and sugary items. The system would allow both tax officials and consumers to scan products to verify legal production and VAT compliance. The NBR stated that verified complaints from consumers about non-compliant products would be rewarded, and that those found evading tax would face fines. The initiative is an attempt to bring retail-level compliance technology in line with practices in other developing markets.
Earlier in the year, the NBR chairman criticised upscale restaurants for failing to provide VAT invoices to customers, signalling targeted enforcement attention to the food and beverage sector. He also announced that individuals providing information on tax evasion would be rewarded, and that a general culture of invoice compliance needed to be built.
The budget introduced new specific penalties for fake stamp and band rolls — a mechanism associated with excise evasion on tobacco and other controlled goods — and for tampering with VAT software, indicating awareness that digital systems create new vectors for abuse alongside the efficiencies they deliver.
6. Sectoral Issues Beyond the Budget
Telecommunications. Mobile operators formally requested a VAT exemption on spectrum fees in May 2026, arguing that the levy discouraged network investment and was out of step with regulatory norms in comparable markets. The request was not incorporated into the final budget.
LPG and energy. A proposal from the Energy Ministry in January 2026 to cut VAT on LPG imports — from 15% to 10% — to address a winter supply and pricing crisis was considered by NBR but not immediately adopted. The budget ultimately imposed VAT at the import stage on composite LPG cylinders, which may raise prices on imported gas cylinders.
Metro rail. The VAT exemption on metro rail tickets, originally extended to promote mass public transit, was maintained through June 2026.
7. Context and Outlook
Bangladesh’s VAT reform agenda in the first half of 2026 sits at the intersection of fiscal necessity, institutional ambition, and political constraint. The FY27 budget’s revenue target of Tk 604,000 crore represents a 20% increase over the previous year’s already-missed target, and most analysts treat it as aspirational rather than achievable without transformational improvement in compliance rates.
Economists and civil society groups have continued to question whether expanding an indirect tax — which falls disproportionately on lower-income households — is the right primary instrument for revenue mobilisation. The World Bank and CPD have both called for a rebalancing toward direct taxes alongside a rationalisation of VAT exemptions. The government’s response in the budget has been to combine some relief for lower-income sectors with a broader base — bringing more businesses into the net while offering targeted exemptions to agriculture, startups and technology.
The IMF negotiations will be the most consequential external variable. A new programme worth $5–6 billion is under discussion, with an IMF mission expected in Dhaka in mid-2026. The terms of any new programme will determine how aggressively Bangladesh pursues the uniform 15% rate and broad exemption removal — the two most structurally significant VAT reforms that remain aspirational rather than enacted.
