VAT was introduced in Bangladesh in 1991 and replaced the outdated excise duty and sales tax. This shift was motivated by the arguments that, as compared to sales tax, VAT has a higher revenue-raising potential and that its collection and administration are more economic, efficient and expedient. Despite its limitations, VAT has become the single largest source of government revenue in Bangladesh. In this article, the authors describe the key features of the VAT system, including some of the most important problems and possible solutions to overcome them.