The use of discretions in taxation: The case of VAT in Bangladesh

Discretion is an inevitable part of bureaucratic action and tax discretion is positioned between the tax authority's immediate concern for maximizing revenue and the wider concern for good governance. Striking a balance between the conflicting concerns is more challenging in developing countries than in others. The paper explores the extent of tax discretions in the context of Value Added Tax (VAT) in Bangladesh. Based primarily on documentary analysis, the paper adopts a social science perspective to argue that the discretionary powers in the Bangladesh VAT regime infringe taxpayers' rights to certainty, transparency and fairness and hence they require an effective control mechanism for confining, structuring and checking these discretions. The paper also argues that besides striking a balance between the revenue authority's discretion and the rule of law, the administrative discretionary behaviour of the revenue authority needs to be streamlined by the social control that entails a paradigm of good governance as well as by specific written guidelines.