Bangladesh introduced the Value Added Tax (VAT) in 1991 by replacing the age-old excise duty on the domestically produced goods and services and sales tax at the importation stage. The study of the practice and problems of the VAT in different countries shows that the VAT has been introduced not only because of its revenue raising potentials but also because of its simplicity, effectiveness and efficiency, transparency, equity, and progressiveness all of which complement the establishment of good governance.
1.2 Rationale of the study/problem definition
The revenue-GDP ratio in Bangladesh is one of the lowest (8.
5%) in the world. Of all the tax revenues, VAT at present is the single largest contributor to GDP. It has been found that VAT funds the government expenditure more than any other tax. In the very first year of its introduction, VAT yielded a reve25.43% more than the previous year. Starting from 3190 crore taka in FY 1991-92, VAT yielded 28,657 crore taka in FY 2008-09.VAT now accounts for 4.
3% of GDP while the total contribution of tax revenue to GDP is 8.36%. But still different stake holders raise the questions of efficiency and effectiveness of the VAT system in Bangladesh. By efficiency and effectiveness we mean “processes and institutions to produce results that meet the needs of society (effectiveness) while making the best use of resources at their disposal (efficiency).” No such study has so far been undertaken.
1.3 Objectives of the study
The objectives of the study are:
i. To examine to what extent VAT system is efficient in raising revenue by making the use of its resources as compared to the tax system that it had replaced ii. To examine the extent of the enforcement of principles of effectiveness and efficiency as embodied in the VAT legalization iii. To identify to what extent the stakeholders namely the taxpayers and consumers view VAT as an effective and efficient tax system iv. To find recommendations and suggestions for improving the VAT system as an efficient and effective tax system
i. Source of data: Mainly secondary data- published VAT legislations and statistics from the National Board of Revenue (NBR) as well as from Bureau of Statistics will be used. For assessing the stakeholders’ perception of Bangladesh VAT as regards its efficiency and effectiveness primary data will be gathered from Bangladeshi stakeholders like the taxpayers and general consumers.
Based on the target population, probability sampling (stratified sampling) will be used.
iii. Sample size
The total sample size will be 100 (by choosing some strata (e.g. – from consumers, from taxpayers, from the high dense and convenience place). Of them, 50% will be from the taxpayers segment and the remaining 50% from general consumers.
Two set of structured questionnaire with fixed alternative questions including simple dichotomy. determinant choice, frequency determination will be prepared for the target respondents for collecting primary data- one set for the general consumers and the other for the taxpaying business representatives. In order to ensure the accuracy and relevancy of data, questions will be in Bangla. Questionnaire will be pre-tested before putting into use.
v. Data Collection
Researchers (members of the group) themselves will collect data the target population staying in Dhaka and its neighborhood.
vi. Statistical tools for data processing and analysis
Appropriate statistical tools like tables, graphs and charts will be used to process and analyze data and to arrive at the conclusion of the study.
As VAT covers the whole of Bangladesh, the data to be truly representative needs to be gathered from a much bigger population. But due to time and resource constraints, the sample size has been kept small.
Based on the findings and their interpretation, a report containing recommendations will be prepared within the given time limit and presented to the concerned audience.