Lowering targets and missing those: Is splitting NBR enough to break the cycle?

Infograph: TBS

Highlights:

• Revenue targets lowered repeatedly, yet still consistently missed each year
• Bangladesh's tax-to-GDP ratio lags behind regional peers
• Budget lacks bold reforms, focuses on existing taxpayers only
• New NBR split sparks protests, slows revenue activity down
• VAT efficiency remains very low despite high standard rate
• Revenue growth fails to keep pace with GDP expansion

Bangladesh's struggle with revenue mobilisation is no secret — but the gap between ambition and reality has now become too wide to ignore. The country is not just missing its targets anymore; it is lowering the bar and still falling short, revealing deep institutional inefficiencies in mobilising much-needed domestic resources.

In FY24, the government targeted a revenue-to-GDP ratio of 9.6%. It achieved just 8.2%. This pattern is not new. Since FY20, the ratio has hovered around 8%, despite targets being revised downward each year — from 11% in FY20 to just 9% in the upcoming fiscal year.

Even with 11.6% growth in FY24 and a total collection of Tk 4.09 lakh crore, the government still fell short of its target by Tk 68,700 crore — and early signs suggest FY25 may fare even worse. Though better than the 23.61% shortfall during the pandemic-hit FY20, the gap has remained stubbornly high at 13-15% in recent years (FY22–FY24).

Meanwhile, the Finance Division warned in its report titled "Medium-Term Macroeconomic Policy Statement FY2025-26 to FY2027-28" (MTMPS), released on June 2nd, that "Without robust reforms in revenue mobilisation, export diversification, and debt management, the debt burden and associated risks could increase."

Where Bangladesh stands globally 

What is more alarming is how the country compares globally. In 2024, Nepal achieved a revenue-to-GDP ratio of 19.2%, Vietnam reached 18.4%, and Lao PDR 18.0%. Bangladesh stood at just 8.3%. Among regional peers, it is falling far behind.

Revenue mobilisation remains a key policy focus in the finance ministry's MTMPS, which acknowledges that tax collection falls far below its potential despite consistent efforts. But in practice, no remarkable initiatives are seen in the new budget that signal a shift from the traditional approach — one that continues to skim more from those already within the tax net, while ignoring the vast untapped segments outside it.

The finance adviser himself admitted that in his hunt for more revenue, he had to strike a balance — taxing some more and relieving others. "...if we reduce taxes in one area, we must increase them elsewhere," he told the post-budget press conference. This approach may generate additional revenue, but ultimately consumers will bear the burden as the costs of local production and imports rise for scores of items.

The MTMPS refers to recent reform measures, such as the latest move to separate tax policy from tax administration, automation of tax payments, expansion of tax zones, and reduction of tax exemptions. These steps aim to help achieve the medium-term annual average revenue growth target of 10.4% — yet another instance of setting a lower bar and justifying the inefficiency of the revenue authority.

 Even if this target is achieved, the question remains: how far will it help meet the resource gaps needed to finance development and repay rising debt?

The finance adviser reiterated the interim government's budget philosophy: "We have stepped back from chasing abstract growth metrics... Our focus is on improving people's lives, not just numbers."

But lowering targets — and still missing them — cannot help a nation move forward. This becomes even more critical as Bangladesh is set to graduate from least developed country (LDC) status next year. Here, numbers do matter — as much as quality. If the government truly means what it states in the budget document about building an equitable and sustainable economic system, it must invest more in human development — particularly in education and health.

A task force titled "Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development," headed by economist Dr KAS Murshid, has made several recommendations. To start with, it proposes setting up at least one global-standard hospital and one research university as centres of excellence.

Such ventures, aimed at improving quality of life, require substantial additional resources. Again, this is a numbers game — and the onus is on the revenue authority.

Will splitting NBR help?

The much-hyped revenue reform measure — splitting the National Board of Revenue (NBR) — sparked uproar just ahead of the budget announcement. Revenue and administrative officials protested and even stopped working, slowing overall revenue activity at the tail end of the fiscal year.

While the real outcomes of this "bold" reform are yet to be seen, other reform initiatives have been dragging on for years. This budget offers no time-bound solutions either.

The MTMPS states that effective revenue mobilisation is crucial for ensuring social equity and sustainable development. "However, given the comparatively low tax-to-GDP ratio as well as the impending graduation from LDC status, the government has put special emphasis on strengthening the revenue collection system to enhance its ability to increase growth-augmenting expenditures," reads the document.

It also outlines medium- and long-term revenue strategies (MLTRS) aimed at optimising non-tax revenue collection and ensuring sustainable revenue growth in the post-LDC period.

But the reality is far less assuring.

Bangladesh's revenue collection not only trails behind its regional counterparts, it consistently falls short of whatever targets are set. Tax growth lags behind GDP growth. A large informal economy continues to operate outside the tax net.

Even though the maximum 15% "standard" VAT rate applies to most goods and services, the effective VAT rate in FY24 was just 3.7% — indicating that only a small fraction of VAT collected from people and businesses ends up in the exchequer. "This gap indicates significant potential for improving VAT efficiency and compliance," the MTMPS notes.

Non-tax revenue growth is much slower than that of NBR tax revenue-- 7.9% and 10.6% respectively over the past five years.

Non-tax revenue growth volatility is also striking — peaking at 61% in FY20 due to a one-off transfer of surplus funds from autonomous and state-owned entities, then dropping to 15% the following year. 

Revenue collection grew only 7.7% in the first nine months of the outgoing fiscal year, far below the ambitious 26.5% annual growth target set for FY25.

Revenue buoyancy — a measure of how revenue responds to GDP changes — averaged just 0.83 over the past decade, meaning tax revenues have been growing at a slower pace than GDP. A coefficient greater than one would indicate stronger revenue performance. "This suggests significant untapped revenue sources for further improving mobilisation," the MTMPS states.

Now, the responsibility lies with the NBR — or whatever form it takes after the planned restructuring — to assess how many more years it will take to even come close to the revenue-to-GDP levels of Nepal or Lao PDR-- from 8% now to 18% level.