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Reigning Tax Discretion: A Case Study of VAT in Bangladesh

Discretion is an inevitable part of bureaucratic action, and tax discretion is situated between the tax authority’s immediate concern for maximizing revenue and the wider concern for good governance. Striking a balance between the conflicting choices is more challenging in developing countries than in other countries. This paper explores the extent of tax discretion in the context of value added tax (VAT) in Bangladesh. Based primarily on documentary analysis, the paper adopts the social science perspective to argue that the discretionary powers in the Bangladesh VAT regime are strong and endemic enough to infringe taxpayers’ rights to certainty, transparency, and fairness in a tax system, and hence they require an effective control mechanism to confine, structure, and check them. The paper argues that besides striking a balance between the discretion of the revenue authority and the rule of law, the administrative discretionary behaviour in the revenue authority needs to be streamlined by the social control that entails a paradigm of good governance in the state of affairs as a whole as well as by specific written guidelines.