NBR Mulls Return to Monthly VAT Payments Amid 20% Collection Slump

Reyad Hossain, Dhaka — The government is considering reversing its decision to allow businesses to submit VAT returns and pay VAT every three months instead of monthly, after VAT collection fell sharply by nearly 20 percent year-on-year in July and August 2026 — a revenue concern that highlights the tension between tax collection efficiency and business facilitation.

The National Board of Revenue's VAT policy wing has sent a letter to the finance ministry on the matter. NBR Member Syed Mushfequr Rahman told The Business Standard: "I have heard that a letter has been sent to the finance ministry from the NBR's VAT Policy Wing on this matter."

📊 VAT Collection Decline

• 💰 July 2026 VAT collection: Tk 9,301 crore (vs Tk 11,547 crore July 2025, -19.4%)
• 💰 August 2026 VAT collection: Tk 8,362 crore (vs Tk 11,081 crore August 2025, -24.5%)
• 💰 Combined Jul-Aug FY27: Tk 17,663 crore (vs Tk 22,628 crore, -21.9%)
• 💰 VAT returns submitted July: 3.06 lakh (down from 3.28 lakh in June)
• 📊 Total VAT-registered businesses: over 8 lakh

⚠️ NBR Caution on Quarterly System Assessment

NBR officials cautioned against concluding from the July-August figures, saying businesses have been given until the end of September to submit their returns under the quarterly system. An NBR official said: "After three months, it will be possible to understand whether the decision to allow returns and VAT payments after three months instead of every month was self-defeating for the government."

He added that public money could not remain with businesses for a long period because the government itself has to pay interest on its borrowing — highlighting the fiscal pressure created by the quarterly VAT payment delay.

👥 Business Opposition to Monthly Return

Businesses have warned that restoring monthly VAT payments would run counter to the government's efforts to reduce compliance burdens and improve the ease of doing business.

Debabrata Roy Chowdhury, former director of Nestle Bangladesh Limited, said: "This is a hassle for small and medium-sized businesses." He said the quarterly arrangement had been a welcome measure, but returning to monthly would "conflict with its efforts to reduce the hassle faced by businesses".

📜 Compromise Option

Some NBR officials have suggested a compromise: allowing VAT returns to be submitted quarterly while requiring VAT payments to be made monthly. This would maintain the reduced return filing burden while ensuring faster revenue collection. However, businesses say such an arrangement would not significantly reduce their compliance burden since the payment calculation would still need to be done monthly.

📊 Strategic Context: Revenue Mobilisation Challenge

• 📊 FY27 NBR target: Tk 6.04 trillion (45% growth target)
• 📊 FY26 NBR collection: Tk 415,500 crore (only 82.60% of target)
• 📊 FY26 revenue shortfall: Tk 88,000 crore
• 📊 10th consecutive year NBR missed revised target
• 📊 Government bank borrowing FY26: Tk 165,538 crore
• 📊 NBR exempts Tk 2cr turnover from minimum tax (ID 479)
• 📊 Government spending pressure: 42% of budget on salaries, pensions, interest (ID 524)

🌏 Strategic Implications

• ⚠️ 20% VAT collection decline: Tk 4,965 crore shortfall in Jul-Aug
• ⚠️ Quarterly system impact: revenue delayed by 2 months
• ⚠️ NBR target 45% growth: FY27 target highly ambitious
• ⚠️ Business opposition: monthly returns = compliance burden
• ⚠️ SME impact: monthly filing disproportionately affects small businesses
• ✅ Compromise option: quarterly returns + monthly payments
• ✅ September data awaited: will clarify quarterly system impact
• ✅ 8 lakh+ VAT-registered businesses: large compliance base

The 20 percent VAT collection decline in the first two months of FY27 represents a significant early warning signal for the NBR's ambitious Tk 6.04 trillion revenue target (requiring 45 percent growth). The quarterly VAT payment system, while welcomed by businesses as a compliance reduction measure, has created a revenue timing gap that the government can ill afford given its Tk 165,538 crore bank borrowing in FY26 and the 42 percent budget allocation to non-discretionary spending. The September data will be critical in determining whether the quarterly system is fundamentally undermining revenue collection or whether the July-August decline reflects a transitional adjustment — with the compromise option (quarterly returns + monthly payments) potentially offering a middle ground through the LDC graduation transition period.