Written by The Banking Post
Bangladesh could nearly double its tax revenue without raising rates if it undertakes sweeping reforms in tax administration and compliance, experts said, pointing to significant leakages and structural inefficiencies in the current system.
At a policy dialogue in Dhaka, economists and policymakers argued that the country’s tax-to-GDP ratio—now below 7%—could rise to around 15% through stronger enforcement, improved transparency and institutional reforms.
They stressed that effective enforcement of existing laws alone could boost revenue by 30–40%, provided it avoids excessive pressure on taxpayers and instead encourages voluntary compliance. “Enforcement must not turn into tax terrorism,” one speaker warned.
A key proposal was to separate tax policy formulation from tax collection under the revenue authority to enhance accountability and efficiency. Experts said combining the two functions has limited analytical capacity and slowed reform efforts.
Structural weaknesses in the VAT and supplementary duty system also came under scrutiny. Analysts noted that frequent rate changes, weak compliance and policy unpredictability have created uncertainty and discouraged investment.
One study presented at the event estimated annual revenue losses of around Tk 589 billion due to inefficiencies in the current system. High supplementary duties—ranging from 5% to as much as 500%—were also criticised for distorting prices and pushing economic activity into informal channels.
Speakers said Bangladesh’s heavy reliance on import-based taxes has made domestic goods more expensive and reduced competitiveness, despite strong purchasing power in the economy.
Recommendations included modernising the VAT regime, separating VAT from supplementary duties, broadening the tax base, and adopting data-driven and digital tax systems. Introducing sector-based pilot programmes and green taxation was also suggested.
Business representatives, however, cautioned about rising tax burdens. One corporate executive noted that cumulative tax incidence in certain sectors has climbed sharply in recent years, reaching among the highest globally.
Experts also flagged gaps in transparency, saying the lack of detailed revenue data limits informed policymaking. They called for continuous, data-driven engagement between the government and stakeholders, instead of brief pre-budget consultations.
Overall, participants agreed that without deep structural reforms, Bangladesh risks missing out on its true revenue potential—while a modern, efficient system could significantly strengthen fiscal capacity without increasing tax rates.
