Contribution of VAT to the GDP of Bangladesh: A Trend Study

Abstract

Over the years, Bangladesh experienced different types of consumption
taxes. Before 1991, it was a sales tax regime. Value Added Tax (VAT) was
introduced by the Government of the People’s Republic of Bangladesh in 1991 to
replace Sales Tax. The purpose was to increase the revenue base of government and
make funds available for developmental purposes that will accelerate economic
growth. Gross Domestic Product (GDP) of Bangladesh is increasing satisfactorily in
the last two decades. The contribution of Value Added Tax (VAT) on the GDP
growth of the country remained still unrevealed. This paper analyzes the
relationship between VAT and GDP growth of Bangladesh and investigates how
VAT contributed in the economic growth of Bangladesh based on the data for the
years between 1991/92 to 2011/2012. For this purpose, Johansen co-integration
technique was used to examine the relationship. The study reveals that the Value
added tax has a positive impact on Gross domestic product and is contributing in the
economic growth of the country.