CPD urges tax justice overhaul as Bangladesh eyes post-LDC future

With Bangladesh's tax-to-GDP ratio languishing at a mere 7.3%, the lowest not only in South Asia but across Asia, the Centre for Policy Dialogue (CPD) has urged the National Board of Revenue (NBR) to fundamentally overhaul the country's tax architecture ahead of FY 2026–27 budget.

The policy brief, titled "Tax Justice for Graduating Bangladesh: The Case of Corporate Income Tax and Value Added Tax," was published recently jointly by the Centre for Policy Dialogue (CPD) and Christian Aid (CA).

It calls for an urgent shift from a narrow, revenue-centric approach to a comprehensive tax-justice framework one that treats equitable financing, reduced regressivity, elimination of revenue leakage, and accountable governance as equally essential pillars.

According to CPD estimates, Bangladesh lost Tk 226,236 crore in potential tax revenue in fiscal year 2022–23 from tax evasion alone.

Meanwhile, actual Value-Added Tax (VAT) collections represent a mere 28% to 29% of the country's VAT potential, a gap the report attributes to rampant evasion and an overly generous exemption regime.

The administration led by the Bangladesh Nationalist Party (BNP) has pledged to raise the tax-to-GDP ratio to 10% in the medium term and to 15% by 2035.

CPD warned that chasing revenue targets without structural reform risks deepening inequality and undermining social progress.

A singular focus on revenue collection, without addressing underlying structural weaknesses, risks deepening existing inequalities, the report cautioned.

On corporate income tax, CPD recommended gradually aligning Bangladesh's statutory CIT rate with the OECD/G20 global minimum tax threshold of 15%, ensuring neither the export-oriented nor the non-export sector falls below that floor.

The think tank also flagged that the Effective Tax Rate (ETR) faced by corporations routinely exceeds the statutory rate in some sectors reaching as high as 60 to 70 % owing to disallowed deductions, compliance costs, and administrative inconsistencies.

The effective CIT rate currently averages around 31% for listed firms and approximately 33.5% for comparable non-listed firms.

It recommended bringing these down to more competitive levels.

The report further calls for replacing the current flat reduced tax rate for listed companies with performance-based incentives tied to measurable outcomes such as capital investment, export growth, or employment generation.

Acknowledging VAT's inherently regressive character, CPD recommended consolidating the current eight-slab VAT structure into a simplified three-tier system, standard, reduced, and zero rates with an eventual long-term goal of a two-tier arrangement.

It also proposed lowering the standard VAT rate from 15% to 10%, but only alongside concrete measures to broaden the tax base and tighten enforcement.

Crucially, the report advocateed ring-fencing a portion of VAT revenues for cash transfers and social safety net programmes targeting low-income households.

VAT collected from sensitive sectors such as private health and education should be reinvested to improve access for disadvantaged communities rather than flowing into a general revenue pool that disproportionately serves better-off segments of society, it said.

It also called on the Ministry of Finance to scrap tax concessions for power producers relying on fossil fuels.

These incentives, the report finds, disproportionately benefit high-emission producers while degrading the environment.

The think tank also recommended introducing sunset clauses for all tax incentives so that industries are required to transition to standard rates after a fixed period.

Export cash incentives, long a cornerstone of Bangladesh's industrial policy should be phased out gradually as the country prepares for LDC graduation, with WTO-compliant alternatives such as duty drawbacks and investment credits introduced in their place.

To modernise enforcement, CPD urged the government to deploy data analytics and artificial intelligence in tax administration and to mandate a secure, bidirectional data-sharing framework connecting the NBR, Bangladesh Bank, and commercial financial institutions. Electronic Fiscal Devices (EFDs) should be made mandatory for all eligible businesses nationwide, the report said.

The think tank also recommended that Bangladesh align itself with the OECD's Base Erosion and Profit Shifting (BEPS) framework to tackle cross-border tax evasion.

Perhaps the sharpest criticism in the report is reserved for the NBR's own institutional shortcomings. CPD described the current state of data reporting at the revenue authority as "highly problematic," citing significant inconsistencies and glaring data gaps that undermine any serious accountability.

To remedy this, the report called for a universal Unique TIN system, mandatory digital tax filing for all businesses, standardised data reporting practices, and a dedicated digital tax dispute resolution system capable of settling disagreements within 30 to 45 days.

CPD further recommended separating tax policymaking from tax collection within the NBR, a structural reform it says is essential for greater transparency and efficiency.

A dedicated independent entity should be established solely to manage tax refunds, removing this function from the NBR's remit, it added.

The report also flagged the burden advance tax payments place on small and medium enterprises (SMEs), calling for their removal so that businesses can access the judicial process without being financially coerced into accepting unjust settlements.

On broader tax culture, CPD recommended that the Ministry of Education introduce mandatory tax literacy classes in schools, colleges, and universities, a long-term investment in voluntary compliance. Repeated failure to file tax returns, the report adds, should be made a criminal offence.

CPD estimated that the NBR's active taxpayer base should be raised to cover at least 59% of registered companies, a significant jump from current levels.

It recommended cleaning up the corporate registry by removing defunct businesses, publicly disclosing tax submission status data to create reputational pressure on non-compliant entities, and bringing emerging sectors including the gig economy, the entertainment industry, and NGOs within the tax net.

The CPD report framed its recommendations not merely as a fiscal exercise but as a question of justice ahead of a consequential national transition. Bangladesh is scheduled to graduate from least developed country (LDC) status, a shift that will strip away preferential trade and aid arrangements the country has long relied upon.

The report was jointly authored by Khondaker Golam Moazzem, Tamim Ahmed, Maleehah Sabah Ali, Sami Mohammad, and Mohammad Iftekharul Islam of CPD.