VAT often fails to reach government exchequer: finance adviser

Finance Adviser Salehuddin Ahmed today expressed dissatisfaction over the evasion of value-added tax (VAT), saying that the indirect tax does not always reach the public coffers even though consumers pay it during the purchase of goods or the receipt of services.

"It is an unfortunate and persistent weakness in the VAT system," he said today at a seminar marking VAT Day at the NBR headquarters in Dhaka. NBR Chairman Md Abdur Rahman Khan presided over the event.

"One thing about VAT is that the system must be very simple, and there should be no manipulation. If you or I pay VAT, it must reach the government exchequer," Ahmed said.

He said that in many countries, there is no escape from VAT when buying goods or services. But in Bangladesh, many consumers actively seek out shops that do not charge VAT, which reinforces non-compliance among businesses.

"I have seen many people, even relatives, ask, 'Does this shop have VAT?' If the answer is yes, they immediately look for another shop," he said.

"If a business says it will not charge VAT, people accept it. This mentality must change," he said, and added, "Taxpayers should be assured that they will receive services in return for what they pay."

"In some countries, the tax-GDP ratio is 26 percent. Why do people pay? Because they are convinced the money will not be siphoned abroad and will be used properly," he said. "From the government's side, we must guarantee service delivery."

He recalled his experience in India, where a pharmacy refused to sell medicines without issuing a proper cash memo, despite the process being time-consuming, because accountability was built into the system and culturally expected, he said.

"These practices have to grow in our society," Ahmed said.