Govt widens tax net to rope in lakhs of new taxpayers

The government has unveiled an aggressive strategy to significantly expand the national tax net in the proposed budget for the fiscal 2026-27 by making tax registrations mandatory for a wide range of financial and business activities – a move that could bring lakhs of individuals and businesses into the formal tax system.

Under the proposed budget, Finance Minister Amir Khosru Mahmud Chowdhury today (11 June) sought to widen the tax base by linking tax compliance to access to banking services, credit facilities, trade licences, and utility connections.

To bring small and medium-sized businesses and retailers under the VAT regime, obtaining a Business Identification Number (BIN), the registration required under the VAT system, will become mandatory.

Businesses will also be required to obtain a BIN to access loans from non-bank financial institutions and other financial entities.

The requirement will also apply to obtaining or renewing trade licences, operating mobile financial services' agency businesses, securing membership of trade organisations, obtaining electricity and gas connections in the name of a business, and registering vehicles for commercial entities with the Bangladesh Road Transport Authority.

Officials of the National Board of Revenue said the measures could bring nearly 20 lakh businesses under the VAT system in FY27 alone. They expect that full implementation of the initiative could eventually add at least 50 lakh businesses to the VAT net.

TIN requirement expanded

The budget also proposes making Taxpayer Identification Numbers (TINs) mandatory for opening bank accounts, with limited exemptions for students and a small number of other categories.

In addition, individuals will be required to obtain a TIN to maintain active bank accounts and conduct transactions, potentially bringing lakhs of new people within the tax system.

According to available data, around 1.3 crore people are currently registered within the tax net, although only about one-third submit tax returns annually. In the VAT system, around 8,00,000 businesses are registered, but only slightly more than 4,00,000 submit returns.

Ambitious revenue target

While the government is seeking to expand the tax base significantly, questions remain over whether the measures will be sufficient to achieve its ambitious revenue goals.

Based on current collection trends, the NBR is expected to collect approximately Tk4,10,000 crore in revenue during FY26, against a target of Tk5,03,000 crore. For FY27, the government has set an NBR revenue target of Tk6,04,000 crore.

This implies that tax authorities will need to increase revenue collection by roughly 45% compared with the likely outturn of the current fiscal year.

Such a rate of growth would be unprecedented in Bangladesh's history since independence, according to available revenue collection records.

At the same time, the proposed budget includes tax concessions for several sectors in an effort to support business activity, investment and employment. It also extends the duration of certain existing tax exemptions.

In a notable shift, taxpayers will be allowed to claim refunds of advance taxes, withholding taxes and minimum taxes if year-end assessments determine that excess amounts were paid. Previously, such taxes were often difficult to recover in practice.

These measures, while intended to improve compliance and reduce the cost of doing business, could also limit near-term revenue gains.

Experts sceptical

Speaking to TBS, tax experts have questioned whether the expanded tax and VAT net can deliver substantial additional revenue within a single fiscal year.

Muhammad Abdul Mazid, a former chairman of the NBR, believes that the benefits of the initiatives taken to expand the tax net and stimulate the economy will not materialise as early as next year.

He noted that expecting such immediate results is simply unrealistic, though he welcomed the measures as a positive step forward.

"The initiatives aimed at widening the income tax and VAT nets will not generate the desired revenue boost within FY27," he said. "However, once the broader economy stages a turnaround, revenue collection will inevitably rise."

Snehasish Barua, a tax expert and managing director of SMAC Advisory Limited, said the budget offers limited scope for major increases in revenue beyond the retail sector. "The government's proposals offer little scope for significant tax increases from sectors other than retailers."

He argued that efforts to broaden the income tax and VAT base would require time before generating meaningful revenue returns.

"The benefits of expanding the tax and VAT net may take two to three years to materialise. As a result, there could be a substantial revenue shortfall relative to the target in the coming fiscal year," he said.