Overdependence on indirect tax may hurt economy: Experts

Bangladesh needs to reduce its heavy reliance on indirect taxes and tax deducted at source and shift towards direct taxation and a digitally integrated tax system to ensure sustainable economic growth, according to experts.  

The existing tax structure has become increasingly regressive, placing a disproportionate burden on ordinary consumers and compliant businesses, they warned at a roundtable discussion over the impact of indirect tax on the economy organised by Voice for Reform at the BDBL Bhaban in Karwan Bazar of the capital today (18 May). 

Speaking at the event, tax expert Snehasish Barua said Bangladesh's tax system remains overly dependent on indirect taxes and tax deducted at source, which ultimately shift the burden onto consumers.

"The current tax structure does not reflect actual corporate profitability," he said, stressing the need for industry-based research and greater transparency in tax policymaking.

He also proposed introducing e-invoicing and promoting a cashless economy to reduce tax evasion and improve transparency. 

Policy Exchange Bangladesh Chairman M Masrur Reaz said the existing tax system is regressive and ineffective in reducing poverty and inequality.

He noted that nearly 27-28% of Bangladesh's revenue currently comes from customs duties, which will need to be reduced after the country graduates from the LDC category under World Trade Organization rules.

"We need to move away from a VAT- and customs-dependent framework and increase direct taxation," he said.

Highlighting weak tax compliance and the fear of harassment among taxpayers as key barriers to improving revenue collection, he said that high import costs and the country's low budget-to-GDP ratio are limiting Bangladesh's economic potential.

Research and Policy Integration for Development Executive Director M Abu Eusuf said overreliance on indirect taxes and pressure on a limited number of taxpayers remain the country's key fiscal challenges.

He stressed the need to expand the tax net by bringing more urban property owners and financially capable citizens under taxation.

According to him, sustainable revenue mobilisation will not be possible without digital integration and stronger enforcement mechanisms.

Former VAT member of NBR Mohammad Fariduddin said repeated discussions on tax reform have produced little tangible progress.

He pointed to customs valuation complexities, multiple duty rates and supplementary duties as major contributors to rising business costs.

"A coordinated digital tax system is essential for improving revenue administration," he said, adding that no reform would be sustainable without strong political commitment.

Former Head of Tax at Unilever Bangladesh Saeed Ahmed Khan said multiple layers of taxation and flawed valuation methods are hurting compliant businesses and increasing production costs.

"As a result, the burden is eventually transferred to consumers," he said.

Bangladesh Restaurant Owners Association General Secretary Imran Hossain said the country's revenue system has become fragmented and ineffective, alleging that restaurant businesses are struggling due to multiple layers of VAT, supplementary duty and taxes.

"The absence of real data in policymaking is creating opportunities for extortion and leading to flawed tax decisions," he said, demanding a unified VAT structure.

Economic Reporters' Forum President Doulot Akter Mala said excessive dependence on indirect taxes and tax deducted at source has made the tax regime increasingly regressive.

She said a limited taxpayer base and weak compliance mechanisms are putting excessive pressure on a small number of businesses.