Tariff rationalisation must be top reform priority this year: Fahmida
Beyond tax structure, Fahmida highlighted deeper structural weaknesses in revenue management, particularly persistent shortfalls in tax collection targets by the NBR.
Centre for Policy Dialogue (CPD) Executive Director Fahmida Khatun has called for tariff rationalisation to be the most urgent reform priority this year, stressing that Bangladesh must prepare for a post-LDC graduation reality by strengthening domestic revenue mobilisation without over-reliance on import duties.
"My suggestion would be that tariff rationalisation should be the first and most important reform to be undertaken this year," she said at a high-level luncheon organised by the Foreign Investors' Chamber of Commerce and Industry (Ficci) on "Conducive Fiscal Policy for a Better Investment Climate" in Dhaka today (26 April).
"We will increasingly have to depend on domestic resource mobilisation, but not at the cost of higher import duties and indirect tariffs, as existing privileges and flexibilities will no longer be available," she added.
"The VAT system remains overly complex despite years of discussion," she said, adding that simplifying VAT by reducing slabs and broadening compliance could offset revenue losses from tariff cuts and ultimately enhance collection.
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Citing India's experience, Fahmida noted that GST rationalisation there significantly boosted revenue through simplified rates and fewer slabs. "We should also move towards a simplified and effective VAT structure," she added.
Beyond tax structure, Fahmida highlighted deeper structural weaknesses in revenue management, particularly persistent shortfalls in tax collection targets by the NBR.
"This has been a recurring pattern for more than a decade. Every year, ambitious targets are set, but they remain unfulfilled," she said, attributing the issue partly to political considerations overriding realistic projections.
She argued that Bangladesh's budgeting approach, where expenditure targets are set first and revenue is arranged later, needs fundamental reform.
Fahmida also raised concerns over widespread tax exemptions and incentives, which she said are draining public resources without adequate accountability.
While acknowledging the need for incentives to support new industries, she pointed out the absence of sunset clauses. "Once exemptions are introduced, they tend to continue indefinitely. There should be clear time limits, as practiced globally," she said.
She further called for greater transparency in tax expenditures, urging authorities to publish data on revenue foregone due to incentives and special regulatory orders (SROs).
On fiscal governance, she said a midterm review presented in parliament would enhance both transparency and predictability. "Investors value consistency and institutional efficiency more than incentives alone."
Fahmida also underscored the need to link incentives with performance. She also called for institutional reforms within the NBR, including automation, improved human resource capacity, and separation of tax policy from administration.
Jean Pesme, division director of the World Bank for Bangladesh and Bhutan said the separation between tax policy and tax administration is essential for improving governance within the tax system, as well as for advancing digitalisation.
The second major challenge is to establish a clear tax reform plan and begin implementation without policy reversals. "The most important thing at this stage is that the overall direction is crystal clear, and that implementation supports this direction to demonstrate credibility."
He further said it may be more effective to start with less ambitious reforms, but ensure they are properly executed. "What matters now is implementation. We hope to see this reflected in the upcoming budget discussions."
The panel discussion was moderated by Shams Zaman, board member of Ficci and country managing partner at PwC Panelists included Jean Pesme of the World Bank, Chandan Sapkota of the Asian Development Bank, Fahmida Khatun, and Abul Kasem Khan of Business Initiative Leading Development (BUILD).
