Who really pays Value Added Tax (VAT) in developing countries? Empirical evidence from Bangladesh

Abstract

We measure the progressivity of a Value Added Tax (VAT) using income data from the Household Income and Expenditure Survey (HIES) 2005 in Bangladesh. Overall, the VAT burden is found to be relatively high for people in lower income groups at 6.92 percent as compared to the people of high income groups at only 4.56 percent. Comparing the results with and without VAT exemptions, we find that overall the VAT in Bangladesh is regressive. The study provides some policy recommendations that could help design a better VAT system in Bangladesh.