The National Board of Revenue (NBR) has projected to collect an additional Tk 94 billion in value-added tax (VAT) in the upcoming fiscal year 2024-25, according to official documents.
This increase is expected to come from three main sources: the highest by phasing out exemptions, restructuring cigarette taxation and installing electronic fiscal and sales devices.
A VAT collection action plan prepared by the VAT wing of the NBR estimates the highest contribution of Tk 50 billion will come from scrapping full and partial exemptions currently enjoyed by businesses.
The Financial Express has obtained a copy of that plan.
The paper, to be presented to an upcoming International Monetary Fund (IMF) mission later this month, also proposes imposing taxes on sectors currently exempt through budgetary measures.
Besides, it sketches out plans to bridge the compliance gap through new measures, all to boost VAT collection in FY25.
According to the action plan, the revenue board projects an additional Tk 34.5 billion in revenue through restructuring cigarette taxation measures in FY25.
This is on top of the existing revenue of Tk 40.5 billion expected from regular taxation. Officials say the revenue board is considering a "sin tax" on tobacco products in the upcoming fiscal year to discourage their use due to health risks.
The tax authority also expects to collect an additional Tk 9.5 billion in VAT through the installation of Electronic Fiscal Devices (EFDs) or Sales Data Controllers (SDCs) in the next fiscal year.
Challenges to VAT target achievement
The VAT wing of the NBR has identified several challenges in achieving the target for the upcoming fiscal year.
The challenges include import contraction, squeezed budgets for government projects, raw material import hurdles for manufacturing, ongoing dollar crisis and fuel supply concerns.
In the ongoing fiscal year, the NBR is currently working diligently to achieve its Tk 1.4 trillion VAT collection target.
For FY 2025, the NBR anticipates an 11.60 per cent increase in revenue collection through regular measures.
To achieve the remaining target amount, the NBR has formulated the breakdown with quantification.
"The projected revenue target in the VAT sector for the fiscal year 2024-25 is largely dependent on multiple preconditions. About 40 per cent of total VAT revenue comes from the manufacturing sector and about 5.0 per cent comes from the trade sector," the paper said.
VAT in the manufacturing sector is mostly dependent on imported raw materials whereas revenue from the trade sector is dependent on the import of consumable items as well as the production of goods, it added.
This year, imports showed a negative trend which means if the trend continues revenue collection may be hampered, it added.
"… stability in the import of raw materials and consumable items, lessening of the existing dollar crisis, adequate supply of fuel to continue production etc. are the prerequisite for achieving projected revenue," it added.
The VAT wing said revenue collected from government project procurement and other agencies usually accounts for 8-10 per cent of total VAT collection.
"VAT collection from this sector may see a decline as many companies and government have already curtailed their budget," the paper said.
A second review team from the International Monetary Fund (IMF) is scheduled to visit the NBR from April 28 to 30.
The team will meet with representatives from the income tax, customs and VAT wings to gain insights into the NBR's domestic revenue mobilisation action plan.
The government has set VAT collection targets of Tk 1.43 trillion for the current FY, Tk 1.7 trillion for FY 2025 and Tk 2.38 trillion for FY 2025-26.
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