Revenue shortfall forces U-turn on VAT returns

Government Moves to Restore Monthly VAT Returns as Revenue Gap Widens

Thebangladaily.com – Bangladesh is preparing to return to a monthly VAT filing and payment schedule for large businesses after a sharp revenue shortfall exposed the cash-flow consequences of the recently introduced three-month system.

The Cabinet approved a draft amendment to the Value Added Tax and Supplementary Duty Act, 2012, on Monday. The measure is intended to bring back the previous monthly VAT return cycle, reversing a policy introduced only months ago through the latest budget.

National Board of Revenue officials expect an ordinance to be issued soon so that the revised arrangement can take effect. The decision reflects growing concern over the pace of tax collection during the opening months of FY2026-27.

Revenue Target Faces Early Pressure

In the first two months of the fiscal year, revenue collection fell about Tk29,161 crore below target. Receipts were also weaker than during the equivalent period of the previous fiscal year, increasing pressure on the government’s wider fiscal plans.

The government has set an ambitious revenue collection goal of Tk604,000 crore for FY2026-27. Meeting that objective requires the VAT wing to collect roughly Tk20,000 crore each month on average. Last month, however, VAT receipts were about Tk9,200 crore, well below the pace needed to support the annual target.

VAT is especially important because it accounts for around 37 per cent of total government revenue. A slowdown in VAT payments can therefore affect the government’s ability to manage routine spending and fulfil broader financial obligations.

Why the Three-Month System Created a Problem

The tax period for large businesses was extended from one month to three months under the latest budget. This allowed eligible businesses to submit returns and pay VAT at the close of a quarter instead of making monthly payments.

While the policy gave businesses more time between filings, it also postponed the arrival of significant VAT receipts in the treasury. Taxes that would formerly have been paid each month could remain outstanding until the end of the three-month period.

The change in the tax period has affected the monthly flow of VAT revenue.

Restoring monthly returns is expected to give the treasury a steadier stream of funds rather than leaving substantial liabilities to build up over an entire quarter. The change is primarily about the timing of collection: the tax remains payable, but the government wants payments to arrive more regularly.

For businesses, the return to monthly compliance will mean more frequent filing and payment obligations. For public finance managers, it is intended to improve visibility over incoming revenue and reduce the uncertainty created when large payments are deferred.

Legal Framework Set for Revision

Section 64 of the VAT and Supplementary Duty Act requires registered businesses to file VAT returns and pay applicable tax within 15 days after the end of a tax period, unless special permission has been granted. Before the latest budget changes, that period had traditionally been one month.

The proposed amendment would formally reinstate the one-month tax period. Once implemented, the move will undo the quarterly framework for large businesses and restore the filing rhythm that had been in place before the budget revision.

The swift policy reversal highlights the tension between easing administrative requirements for taxpayers and maintaining a dependable government revenue flow. A longer filing period may appear convenient from a compliance perspective, but it can create a gap between economic activity and the point at which related tax revenue reaches public accounts.

Broader Collection Challenges Remain

Delayed VAT receipts from large businesses have contributed to the current squeeze, but they are not the only issue facing the revenue system. Officials have also identified broader weaknesses in tax administration and collection as continuing concerns.

Bringing back monthly returns may improve near-term cash management, yet it does not by itself guarantee that the annual revenue target will be met. The effectiveness of the change will depend on timely filing, payment compliance and the capacity of the VAT administration to monitor obligations across registered businesses.

The immediate objective is clearer: regular monthly payments would prevent large sums of VAT from remaining outside government accounts for extended periods. With the FY2026-27 target demanding a much stronger collection performance, the government is seeking to stabilise the flow of funds into the treasury as quickly as possible.

The planned ordinance will determine when businesses must shift back to the monthly schedule. Its arrival will mark a significant reversal in VAT policy and underline the urgency of the government’s effort to close the widening revenue gap.