The Equity Impact of the Value-Added Tax in Bangladesh

Abstract

This paper investigates the income distributional implications of different value-added tax (VAT) schemes in Bangladesh. The results indicate that a revenue-neutral uniform VAT is regressive (relative to the pre-reform situation) in its impact on the income of different households. This paper explores the income distributional impact of an alternative policy package, consisting of a basic rate of VAT with exemptions and excise taxes for certain commodity groups, chosen on the basis of their distributional characteristics. The welfare consequences of the alternative package are found to be superior to those of the uniform VAT.