CPD stresses tax justice as Bangladesh targets 17% tax-GDP ratio by FY30

As part of the Perspective Plan 2041, Bangladesh aims to raise its tax-to-GDP ratio to 16.96% by FY30. The country, set to graduate from least developed country status next year, must also align with high-income countries' average of above 15%.

At an event organised by the Centre for Policy Dialogue (CPD) yesterday, discussions centred on how to boost revenues and ensure tax justice. However, the National Board of Revenue (NBR) chairman highlighted a stark reality: Bangladesh's tax-to-GDP ratio has fallen further, to 6.6% in the last fiscal year. In FY24 the ratio was 7.4% 

This decline comes despite government efforts to strengthen revenue collection, said NBR Chairman Abdur Rahman Khan. "Pakistan's deputy prime minister (who visited Dhaka this week) told us that their country's tax-to-GDP ratio is over 12%," he said, stating how alarming revenue decline here is. 

He later clarified to The Business Standard that the figure was calculated by the International Monetary Fund (IMF) and has not yet been finalised.

Releasing the findings of its study titled "Reform in Corporate Tax and VAT: A Justice Perspective for NBR", the CPD estimated tax evasion in 2023 at Tk2.26 trillion.

In comparison, the NBR collected Tk3.71 trillion in FY25. Based on responses from 123 companies surveyed in December, CPD also noted that the government grants a substantial volume of tax exemptions.

The event, held at a Gulshan hotel in Dhaka, was attended by business leaders, economists and government officials. 

At the event, CPD stressed that Bangladesh must raise revenues to ensure financial stability after LDC graduation. Under World Trade Organisation rules, the country, once graduated,  will no longer be able to provide direct cash incentives on exports, including for RMG and other sectors.

To address this, CPD proposed restructuring tax incentives and exemptions, plugging revenue leakages, and shifting towards performance-based incentives tied to capital investment, export growth, or job creation. Globally used tools – such as tax credits for IPO costs, temporary tax holidays for newly listed firms, or reduced audit scrutiny – could provide fairer and more targeted support.

The think tank also recommended lowering corporate tax and VAT rates, and simplifying processes to reduce regressive practices. Survey respondents cited corporate concerns about compliance burdens and fairness. CPD suggested Bangladesh should learn from tax policies in other graduating LDCs and comparable economies to reach a 17% tax-to-GDP ratio by FY30.

Its study described the tax system as not adequately progressive and poorly enforced, resulting in harassment of businesses but little growth in revenue. In FY24, only 9% of registered companies submitted returns, underscoring widespread non-compliance. To achieve the 2030 revenue goal, around 59% of the 288,000 registered firms would need to comply, CPD said.

The tax burden on individual companies has nearly doubled, rising from Tk1.09 crore in FY17 to Tk1.94 crore in FY22. CPD estimated that if corporate tax revenue were evenly distributed across all eligible companies, the per-company burden could fall by as much as 75%.

On VAT, CPD noted that while a single rate simplifies administration, the global norm involves multiple rates, often reduced for essential goods. Bangladesh, however, operates a five-slab system – one of only two countries among 74 surveyed to do so. Its standard 15% VAT rate is also higher than in comparable economies such as Cambodia, Vietnam, Thailand, Malaysia and Paraguay, where rates are 10%.

The NBR's reform advisory committee has already suggested cutting the standard VAT rate to 10%, which CPD supports. A lower rate, it argued, could expand the VAT base, reduce burdens on low-income households, ease inflationary pressures, cut business costs, encourage investment, and stimulate growth. 

Simplifying the VAT structure by reducing slabs was also deemed essential, with 73% of respondents citing the system's complexity as a major barrier.

Effective corporate tax needs to be reduced  

CPD also urged the government to reduce business bottlenecks to raise corporate profits to 15% of GDP by 2030, up from the current 6%.

"In parallel, the effective corporate tax rate should be gradually reduced from 31–33% to around 23%," said CPD Senior Research Associate Tamim Ahmed in a written recommendation.

Currently, Bangladesh has at least six corporate tax rates, ranging from 20% to 45%. For most non-listed companies, the rate is 27.5%. The government has reduced the overall corporate tax rate by about 10 percentage points in recent years, from 35%. But businesses argue that the effective rate exceeds 40% because of disallowed expenses and other restrictions.

Firms also face minimum tax obligations, non-allowable expenses, complex procedures in tax, VAT and customs, as well as harassment. 

To address these issues, CPD recommended forming an expert committee. 

In his speech, the NBR chairman blamed three groups for enabling tax non-compliance. "Tax lawyers, accountants, and even some NBR officials are assisting those who evade compliance," he said. 

He also announced that audit files would no longer be selected manually. "Audit selections must be risk-based. Until full automation is achieved, manual selection will remain suspended – if necessary, indefinitely."