Govt Backs Off Package VAT After Business Outcry

The government has withdrawn its proposal to introduce a fixed-rate value-added tax (VAT), widely known as package VAT, for small businesses following strong opposition from retailers and concerns over its impact on the small and medium enterprise (SME) sector.

Officials said the decision was taken after business groups warned that the proposed measure would increase operating costs and expose small traders to unnecessary administrative complications.

The government has also decided to roll back several proposed tax increases in the tobacco sector. The supplementary duty on imported nicotine pouches is likely to remain at 35 percent, while the proposed tax hike on imported raw materials used in conventional cigarette production is also expected to be withdrawn.

Under the current system, retail businesses with annual turnover of Tk 50 lakh or more are required to register for VAT, while businesses below that threshold remain outside the VAT net.

However, the proposed budget sought to make VAT registration mandatory for all retail businesses from July 1, regardless of turnover.

The proposal triggered widespread concern among small business owners, who argued that the measure would place an additional financial burden on small traders and create opportunities for harassment by VAT officials.

Government sources said Finance Minister Amir Khosru Mahmud Chowdhury instructed officials to remove the relevant provisions before the Finance Bill is passed.

A senior official said the proposal also raised implementation concerns, as many medium-sized businesses could potentially shift from the regular VAT system to the package VAT system to reduce tax obligations.

The package VAT system was originally introduced to simplify tax payments for small businesses but was later phased out following the introduction of the automated VAT system under the VAT and Supplementary Duty Act, 2012.

The Bangladesh Shop Owners Association strongly opposed the proposal, urging the government to keep small and micro businesses outside the VAT framework.

At a recent press briefing, the association warned that bringing small traders under VAT would create instability in the SME sector and increase business uncertainty.

Association President Md. Helal Uddin said many small traders lack the capacity to collect VAT directly from consumers.

According to the association, around 775,000 businesses are currently registered under the VAT system. It also noted that 60 percent of the Tk 142,000 crore VAT collected in the previous fiscal year came from only 109 businesses under the Large Taxpayer Unit (LTU).

Business leaders also urged the National Board of Revenue to accelerate VAT automation, expand the active taxpayer base and strengthen monitoring of large businesses.

Meanwhile, the government is also considering reducing the proposed capital gains tax on landowners from 15 percent to 5 percent as part of broader tax policy adjustments.