Bangladesh VAT Guide 2026

Standard VAT Rate — 15%

The standard VAT rate in Bangladesh is 15% (applicable from FY 2024–25 onward, though it has been 15% since the 2019 VAT law). The 15% rate applies to most goods and services unless specifically exempted or reduced. VAT is calculated on the taxable base (generally the transaction value excluding VAT).

The VAT and Supplementary Duty Act 2012 (মূল্য সংযোজন কর ও সম্পূরক শুল্ক আইন ২০১২) replaced the earlier VAT Act 1991 and introduced a destination-based consumption tax with fewer exemptions and broader coverage.

Reduced VAT Rates

Certain goods and services attract reduced VAT rates:

• 0% (Zero-rated): Essential food items (rice, wheat, milk, eggs, vegetables), unprocessed agricultural products, exports of goods and services, and certain basic pharmaceutical products.
• 5%: Some pharmaceutical products, selected basic goods, and certain services (e.g., transport of goods by road).
• 7.5%: Certain services including restaurant services (non-luxury), some IT-enabled services, and specified goods.
• 10%: Selected services (e.g., telecommunications), certain manufactured goods, and some professional services.

The reduced rates are designed to alleviate the tax burden on lower-income households while maintaining VAT coverage across the economy.

Supplementary Duty (SD)

Supplementary Duty (SD / সম্পূরক শুল্ক) is an additional tax imposed on luxury and demerit goods, levied on top of VAT. SD rates vary widely:

• Tobacco products: Up to 500% (cigarettes by tier)
• Alcoholic beverages: 200% to 500%
• Luxury vehicles: 100% to 350% depending on engine capacity
• Cosmetics and perfumes: 100% to 200%
• Electronics (certain luxury items): 20% to 60%

SD is calculated on the customs value (for imports) or the transaction value (for domestic goods) and is payable alongside VAT. The SD base is inclusive of customs duty but exclusive of VAT.

VAT Registration Threshold

• Goods: Annual turnover exceeding BDT 80,00,000 (80 lakh) — mandatory VAT registration
• Services: Annual turnover exceeding BDT 80,00,000 (80 lakh) — mandatory VAT registration
• Small businesses (below threshold): May register voluntarily or opt for the turnover tax regime (4%)

The threshold was standardised at BDT 80 lakh for both goods and services under the VAT Act 2012. Businesses below the threshold are not required to charge VAT but may register voluntarily to claim input tax credits.

Turnover Tax for Small Businesses

Small businesses with annual turnover below the registration threshold may opt for a turnover tax of 4% on gross receipts instead of the standard VAT system. This is a simplified regime with no input tax credit. The turnover tax is a final tax — no further VAT liability arises. Businesses may choose between:

• Turnover tax (4%): Simple, no input recovery, no return filing (quarterly payment only)
• Standard VAT (15%): Full input credit, monthly/quarterly returns, higher compliance

e-VAT System (Mushak 11.3)

Bangladesh has implemented a comprehensive e-VAT system under the VAT Online Project (VOP). Key features include:

• Mushak 11.3: The electronic VAT return form filed online via the NBR portal
• Real-time reporting: VAT-registered businesses must issue e-challans (electronic invoices) through the system
• Monthly/Quarterly filing: Large taxpayers file monthly; medium/small businesses file quarterly
• Input-Output Coefficient Method (IOCM): Alternative simplified method for input tax credit calculation available for certain sectors
• Automated VAT deduction at source: Certain payers must deduct VAT at source and deposit electronically

The e-VAT system has significantly improved compliance, reduced tax evasion, and streamlined refund processes.

VAT Exemptions

The following categories are exempt from VAT (no VAT chargeable and no input credit):

• Unprocessed agricultural products (rice, fresh vegetables, fruits, meat, fish, eggs, milk)
• Basic education services (schools, madrasas)
• Basic healthcare services (hospitals, clinics, diagnostic centres)
• Public transport (bus, train, launch/ferry)
• Books and educational materials
• Agricultural inputs (fertiliser, seeds, pesticides)
• Financial services (banking, insurance, stock brokerage — subject to specific rules)
• Residential rental property (below threshold)

FAQs

Can a business below the threshold voluntarily register for VAT?

Yes. Voluntary registration allows businesses to charge VAT to customers and claim input tax credits on purchases, which can be beneficial for B2B suppliers whose customers are VAT-registered.

How does the e-VAT system handle refunds?

Excess input VAT can be carried forward or refunded. Refunds are typically processed within 30 working days for exporters and 60 days for domestic businesses. The e-VAT system has streamlined the refund process significantly.

What is VDS (VAT Deduction at Source)?

VAT Deduction at Source (VDS) requires certain entities (government departments, large companies, NGOs) to deduct VAT at source when making payments to suppliers and deposit it directly to the NBR. The supplier receives a VAT deduction certificate to claim input credit.

Disclaimer

This guide provides general information about Bangladesh VAT for the 2026 tax year. VAT laws, rates, and thresholds may change through the annual Finance Act and SRO (Statutory Regulatory Order) amendments. Always consult with a qualified VAT consultant or the NBR directly for advice specific to your situation. InvestmentKit does not provide tax advice.