Abstract
Value Added Tax, commonly known as VAT, is an indirect source of government revenue, especially for developing countries. Value Added Tax (VAT) significantly contributes to a nation's economic growth, and customers' purchasing power is closely linked to economic conditions. Therefore, this study aims to demonstrate the impact of a change in VAT on customers' purchasing power in the context of Bangladesh. This empirical study employs the Mediating Effect Model to understand how VAT affects Bangladesh's economic condition and, consequently, the purchasing power of its citizens. To determine the impact of VAT on the purchasing power of Bangladesh’s consumers, this study collects data on GDP, inflation, consumer prices, GDP per capita, and VAT (taxes on goods and services) from the World Bank. The study reveals that VAT significantly influences GDP and customer purchasing power in Bangladesh. Moreover, VAT significantly influences GDP, which in turn significantly alters customer purchasing power. Additionally, a robust VAT framework can contribute to a more equitable tax system, where individuals contribute to government revenues in relation to their consumption levels. This study presents a novel approach to uncovering the hidden impacts of VAT on customer purchasing power. It suggests that policymakers consider VAT as a vital determinant of customer purchasing power and exercise caution regarding changes in the VAT rate.