Tax reform report submitted: What it means for revenue and growth

Tax reform recommends

• Shift from trade-based taxation to stronger domestic tax mobilisation
• Raise tax-to-GDP ratio target from current 10% to 12% by 2030 and 15-20% by 2035
• Increase direct tax share from 30% to 50%, reducing reliance on indirect taxes
• Transition from multi-rate VAT to a single-rate system
• Expanded automation, AI-based risk analysis, risk-based audits

The national committee tasked with restructuring Bangladesh's tax system has submitted a reform agenda to Chief Adviser Muhammad Yunus, proposing major structural changes to boost revenue mobilisation and reduce the economy's heavy reliance on indirect taxation.

The report, prepared by an 11-member taskforce led by Policy Research Institute (PRI) Chairman Dr Zaidi Sattar, sets ambitious targets to raise the tax-to-GDP ratio to 12% by 2030 and 15-20% by 2035, from the current level of around 10%.

It also recommends rebalancing the tax mix by increasing the share of direct taxes to 50% from the existing 30%, signalling a shift towards a more equitable and growth-friendly tax regime.

Titled "Tax Policy for Development: A Reform Agenda for Restructuring the Tax System", the report submitted today (27 January) describes Bangladesh's tax system as unnecessarily complex, inefficient and overly dependent on indirect taxes. 

It argues that incremental or piecemeal changes will not be enough to support long-term economic transformation, calling instead for fundamental and structural reforms.

The taskforce identified 55 policy issues, with seven flagged as immediate priorities. 

Key recommendations include simplifying the tax system through greater digitalisation and automation, introducing artificial intelligence-based risk analysis, expanding risk-based audits and rationalising tax incentives.

The report also proposes a strategic shift away from trade-based taxation towards stronger domestic tax mobilisation.

On customs reforms, the report suggests modernising the tariff structure and applying equal effective protection for export-oriented and import-substituting industries. It also proposes moving away from port-based enforcement towards post-clearance audits and argues that a separate valuation database for cargo clearance is unnecessary.

In the area of value-added tax, the taskforce recommends a gradual transition from the current multi-rate VAT regime to a single-rate system, saying this would reduce complexity and lower compliance costs for businesses.

Receiving the report, Chief Adviser Yunus said the interim government had limited time but intended to initiate the implementation process. 

Finance Adviser Dr Salehuddin Ahmed said the report would serve as a guideline for improving both revenue collection and governance. 

Officials from the Internal Resources Division noted that the document clearly diagnoses existing weaknesses in the tax system and offers a roadmap for reform.

Revenue up Tk23,000cr

Meanwhile, the National Board of Revenue, in a detailed briefing sent to Chief Adviser Yunus last Sunday, said its reform initiatives have produced positive results in revenue collection, with government revenue increasing by Tk23,020 crore in the first six months of the current fiscal year compared to the same period a year earlier.

The revenue authority stated that total collections between July and December 2025 reached Tk1,85,229 crore, attributing the increase to structural reforms in revenue management, digitalisation, measures to curb tax evasion and taxpayer-friendly initiatives. 

However, economists and former officials have questioned the claim, arguing that the higher growth rate largely reflects a low base in the previous fiscal year rather than the immediate impact of reforms.

According to experts, it was too early for reforms to have such an effect.

Dr Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), told The Business Standard, "Even if some reforms have been undertaken, their results would not come this quickly. It would take more time."

"The growth we are seeing is mainly due to low revenue collection last year. That low base is why the current growth rate appears higher," he said.

As per NBR data, revenue collection during the first half of FY2024-25 (July-December) did not increase; instead, it declined by about 1%.

A former senior NBR official, speaking on condition of anonymity, echoed that view, saying, "The revenue growth being observed is not due to new reforms."

He rather questioned whether any effective reform had been implemented over the past year.

Structural reforms, legal changes

In its briefing, the NBR highlighted the separation of revenue policy from revenue administration as a major milestone. It noted that the issuance of the Revenue Policy and Revenue Management (Amendment) Ordinance, 2025 had formally divided policy formulation from implementation.

The decision was approved at a meeting of the National Implementation Committee for Administrative Reforms (Nicar), chaired by the chief adviser, paving the way for long-awaited structural reforms within the NBR.

The revenue authority also said the government had moved to curb tax exemptions by introducing the Tax Expenditure Policy and Management Framework, which has been published in the official gazette.

Amendments to the Income Tax Act, the Customs Act and the VAT Act have withdrawn the NBR's authority to grant tax exemptions, it said, adding that any future exemptions will require parliamentary approval.

Digitalisation drive

The NBR said it has undertaken a major digitalisation programme under the World Bank-funded Strengthening Domestic Revenue Mobilisation Project, with an estimated cost of nearly Tk1,000 crore.

The project aims to modernise income tax, VAT and customs operations. Measures such as e-returns, online payments, e-refunds, VAT smart invoices and risk-based audits have reduced hassle for taxpayers, the authority said.

In customs, the launch of the Bangladesh Single Window has enabled certificates, licences and permits from 19 agencies to be issued online. Around 900,000 certificates have been issued so far, with most applications processed within one hour to one day, according to the NBR.

In the VAT sector, a special registration drive led to the issuance of 131,000 new VAT registrations in December 2025 alone, raising the total number of registered entities to 775,000.

The NBR said mandatory online submission of income tax returns has resulted in more than 34 lakh e-returns being filed so far.

An email-based one-time password system has also been introduced for expatriate Bangladeshis, making overseas filing easier. More than 5,000 expatriate taxpayers have already used the facility, it said.

The introduction of a risk-based audit system has made the audit selection process more transparent, the authority added.

Duty, tax relief measures

The government has also provided duty and tax relief in several areas, the NBR said.

These include excise duty exemptions on air tickets and related services for Hajj pilgrims, reduced customs duty and advance income tax on date imports ahead of Ramadan, and duty-tax relief on essential commodities.

Customs duty on mobile phone imports has been cut from 25% to 10%, resulting in an overall import duty reduction of up to 60%, according to the NBR.

The authority said the benefits of these measures were already visible in higher revenue collection, increased taxpayer confidence and a more business-friendly environment, and would help raise the revenue-to-GDP ratio over the medium and long term.