Time for a tax policy that benefits all, experts urge
They have called for policies that benefit a wider group of people, particularly women
The country's current tax policy is mainly designed to benefit large business groups. Experts question whether this policy supports small entrepreneurs, and women, or encourages new businesses.
They have called for policies that benefit a wider group of people, particularly women. This approach would help bring more people into the tax system and improve the country's tax-to-GDP ratio, which is crucial for graduating from the Least Developed Country (LDC) status sustainably.
These points were discussed during a roundtable titled "Taxation for a Resilient Economy Post-LDC Graduation," organised by the United Nations Development Programme (UNDP) Bangladesh at The Business Standard Conference Room in Dhaka on 15 January.
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Sk Bashir Uddin
Commerce adviser
Fair taxation is the only way to achieve social justice. Without it, disparities and inequalities will continue to grow, which could lead to events like the one on 5 August—something we definitely want to avoid.
We want equality to prevail and inequality to disappear. To achieve this, we need structural reforms, particularly in the tax system, as it is, in my view, the only way to establish social justice.
Without social justice, we know the consequences. We have seen how the connection between criminal businesspeople and bureaucrats has exploited our national resources, putting us in great difficulty. When we look at our national debt, it is clear that the development goals we have as citizens should be funded by our own resources.
Inam Ahmed
Editor of The Business Standard
This is an important and interesting issue because our tax-to-GDP ratio is one of the lowest in the world, even in South Asia. This is crucial because the entire macroeconomic framework depends on tax revenue. Without it, we can't fund public expenditures or anything else. Therefore, we want to discuss the challenges we face and find a way to build a strong, resilient, progressive, and fair tax system.
Prof Selim Raihan
Executive director of South Asian Network on Economic Modeling (SANEM)
Bureaucrats, corrupt politicians, and corrupt businessmen have formed an alliance that has made it difficult to implement reform initiatives.
We have several reform agendas and have been discussing the need to reform the NBR for a long time. However, there is internal resistance within the NBR itself to carry out these reforms. Even the interim government is attempting to make changes. But are we fully aware of where this resistance will come from, and how do we address it?
In our largest industry, where about 60% of the workforce is female, have we been able to make these workers taxpayers over the past three decades? Looking at their wage levels, it's likely that many earn below the tax-free income threshold.
I'm raising this question because it relates to the pattern of structural transformation in the country, which doesn't really support a strong tax system.
The recent experience with inflation highlights that the tax policy and revenue policy are not aligned with the monetary policy. These policies are not coordinated, and they don't interact with each other. This issue needs to be addressed seriously.
Bangladesh is set to graduate from the LDC status in November 2026, unless something changes. After that, relying on customs duties will be challenging because Bangladesh will face increased scrutiny from international bodies, especially the WTO, to align and reform its tariff policy. In this scenario, income tax and VAT will become the main sources of revenue. Are we heading in the right direction?
Mirza Mohammad Mamun Sadat
First secretary of tax policy of NBR
Everyone agrees that we need reform, capacity building, and a new way of thinking. The NBR has already formed a task force to provide concrete recommendations for the changes needed in the tax code.
In consultation with all stakeholders, we have developed a medium- and long-term revenue strategy paper for the first time, covering the period from 2025 to 2034. Our target is a 10-year plan with six specific goals.
The first goal is to have end-to-end automation, which aligns with the recommendations in the white paper. Currently, we lack sufficient and segregated data. Once you submit your return, we will immediately have the data in our database, allowing us to process it in the required way. This will help increase voluntary tax compliance and provide taxpayers with more satisfaction.
This goal is a priority, and our chairman is deeply involved. We are working with development partners to formulate projects, and the Government of Bangladesh will also provide funding. We are soon moving forward with comprehensive digitalisation, which will go beyond the piecemeal efforts of the past.
The second goal is to increase the tax-to-GDP ratio to at least 10.5% by 2034. We are also focusing on improving voluntary compliance and closing the gap between actual and potential tax revenues.
Currently, we are operating under a heavy tax expenditure regime, where we give away almost as much tax as we collect. This is not a sustainable policy for Bangladesh. Many of the Statutory Regulatory Orders (for exemptions) in the NBR now lack clear timelines, and we are actively working to address this.
Sayema Haque Bidisha
Professor of Economics, University of Dhaka
The tax base should be designed in an equitable and gender-friendly way. While gender equity and equality are not widely embraced in Bangladesh, we must move forward and explore mechanisms to promote gender justice.
Many women work in the informal sector, often with very low pay. They have limited opportunities to contribute to domestic resources, improve their situation, or support inclusive development.
Without gender-segregated data, we cannot truly understand the broader picture. And without this understanding, it is challenging to create gender-friendly and gender-sensitive policies.
Stefan Liller
Resident representative of UNDP Bangladesh
Despite some progress, Bangladesh's tax-to-GDP ratio fell to 7.3% in the 2022-23 fiscal year. This is much lower than that of neighbouring countries, such as India at 12% and Nepal at 17.5%. A tax system should not only be efficient but also promote equity and fairness.
An equitable tax system should prioritise small and medium businesses, as they are the main source of employment in the country. A large number of small businesses, around 70-80%, operate outside the formal sector.
To help these businesses formalise, offering incentives and simplifying regulatory compliance are essential.
A simplified tax system, reducing unnecessary exemptions, and gradually bringing the informal economy into the formal sector are proven methods for expanding the tax base.
Sumaiya T Ahmed
Head of sustainability, PRAN-RFL Group
We are going to start losing many of the benefits we currently have or have already begun receiving. In this situation, how can the government truly support local industries? Local companies that produce goods and services for import substitution. How can we focus on these areas?
Also, we should approach this in a gradual, phased manner, rather than making big, bold decisions—especially on the economic side—that may not have the desired impact or may not be as popular as we hope.
Owais Parray
Senior economic advisor, UNDP Bangladesh
Techniques from behavioural science and digitalisation are being applied to the tax system to improve tax compliance and revenue collection. While efficiency in the tax system is well understood, the equity aspect gets less attention. We need to consider the economic and social costs and benefits.
Once a tax exemption or incentive is given, it becomes difficult to change later. Therefore, it is crucial for the tax system to be based on solid evidence, so we can evaluate economic and social benefits. There's no one-size-fits-all template because each country and situation is different. Some degree of experimentation can help.
Mohammad Nazmul Hossain Avi
Senior program officer, ILO Dhaka Office
Tax regimes have a significant impact on labour market institutions, such as minimum wage, collective bargaining, and unemployment benefits. One example of this is how our country has been increasing VAT, which puts pressure on consumers and, ultimately, on workers as well.
In our country, we lack a clearly defined wage policy and minimum wage system. While there are minimum wage boards for 44 sectors, they are not regularly updated, except for the RMG sector and a few others. We also don't have a national wage policy to set a benchmark.
When these instruments are absent, setting up tax policies can become ad hoc. This is evident in how people earning below or near the minimum wage, or those experiencing a decline in real wages over the past two decades, are affected. This situation influences poverty, inclusion, and inequality as a whole.
M Abu Eusuf
Executive director, Research and Policy Integration for Development (RAPID)
What should the budget size be? Can we determine the exact budget size in the context of Bangladesh? It needs to be feasible and implementable. Is there an opportunity to reassess the need for operating expenditures? Regarding the development budget, there are around 1,300 development projects. Can we categorise the priority projects based on employment generation, or are these projects crucial at this moment?
We should first set the expenditure and then determine the revenue. If we come up with a rationale and implementable budget size, we should avoid returning to previous levels and instead aim for incremental growth. This is an important task.
It is reported that around 85% of assets are owned by the top 10%. We need to research whether this top 10% is adequately covered by the tax system. If the tax web adequately covers this group, it would have a significant impact.
I also believe there are huge opportunities ahead if we can implement automation. We are talking about an integrated automated system.
In the whitepaper chapter, we have covered many issues and discussed them with the NBR. We also addressed exemption issues. The government's exemptions account for about 6% of GDP. While some exemptions are necessary to promote certain sectors, if we can rationalise them, it could increase our tax-to-GDP ratio.
Wasim Zakariah
Co-chairman of the standing committee on SDG Affairs, BGMEA
There is no relief from income tax, whether the business is making a profit or a loss. Exporters must pay a 1% source tax on the freight-on-board (FOB) price or export value, and we cannot get this back, even if we make a loss. Whether we are profitable or not, we are still taxed.
Seventy percent of the FOB price consists of raw material costs, but we are taxed on the entire FOB amount. In reality, that 70% is not our income, as we need to pay it back to our suppliers.
We must also consider that once the Generalised System of Preferences (GSP) facility ends, the double transformation rules of origin will apply. This will require us to produce fabrics, materials, trays, and accessories locally, which will be another challenge.
For example, if we want to install solar panels and import them from China or another country, they are subject to high taxes. Additionally, if we sell our waste materials to a recycler, we are taxed more than 20%. These factors make it difficult to follow sustainability practices.
Bazlul Haque Khondker
Chairman, SANEM
Bangladesh has one of the lowest tax-to-GDP ratios, but I have not seen much reform in this area, which is a major source of the problem.
When it comes to gender and taxation, we are gender-blind in terms of consumption taxes because we do not have enough data. However, we can look into which products and services are more gender-sensitive or specifically beneficial for women. One potential approach could be reducing taxes on these items, but the implementation of such policies could be challenging.
Consumption taxes are particularly difficult to adjust, and the current system is making life harder for everyone. For example, a business owner might struggle to plan their taxes or costs because tax rates are left to the discretion of the NBR.
If a product is assigned one code, it's taxed at 5%, but if it's assigned another code, it's taxed at 15%. We could identify products and services that are more gender-sensitive, but the question remains—should we apply different tax rates for these? This is an issue that needs careful consideration.
Ultimately, the benefits of tax policies should reach the intended beneficiaries. In terms of revenue, we could explore non-tax revenue sources. It might also be more efficient to focus on the expenditure side to support women, in addition to tax reforms.
There is significant potential for redistribution through taxes and expenditure, such as investing in care services, which are a major barrier to women's labour force participation. This issue is often more about their informal sector status than taxes themselves.
To address the transition from informal to formal work, we need to think in new ways. So, beyond tax reforms, we should consider a broader perspective on supporting women through both tax policy and public expenditure.
Rawnak Jahan
Director, Women and Youth Empowerment Program at CARE Bangladesh
As development practitioners, we can discuss these issues more openly and make them easier to understand for the general public. I believe it is equally important to change people's behaviour and mindset toward paying taxes. We already have many good and strengthened systems in place.
However, if we don't achieve the necessary behaviour change, or if we are unable to implement our plans, development organisations can help build the capacity of policy implementers and those responsible for enforcement. However, we don't know how many women and men are paying taxes, since we lack gender-segregated data.
Md Alamgir
Secretary general, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI)
There is dissatisfaction with the NBR's failure to refund advance taxes and the lack of automation. During discussions, businesses expressed frustration with the harassment and lengthy procedures involved in the NBR's assessment process.
They also pointed out that the Advance Income Tax (AIT) collected by the NBR from the business community often does not follow the rules and regulations. In some cases, businesses pay more than the actual tax, but they do not receive a refund at the end of the year.
Honest business owners who pay their taxes properly each year are being unfairly burdened. The NBR has not taken its tax base down to the grassroots level, where there is potential for much more business activity and additional tax revenue from districts and sub-districts.
We stressed the need for the NBR to implement sustainable automation and introduce a single-window service like Singapore's trade system. With such a system, businesses could submit files, make payments, and receive certificates online.
Currently, they must physically submit documents, which makes the process lengthy. Once the new system is in place, many services from the NBR will be streamlined, helping to rebuild trust between the business community and the NBR.
Sharmind Neelormi
Professor at Jahangirnagar University
Government tax exemptions mainly benefit large businesses, especially those in sectors that require significant investment.
Women typically engage as labourers or small-scale investors, not in major investments. They rarely own land or property, yet we expect them to fall under the tax system.
To include them in the tax net in a fair and effective way, we must first provide them with the resources to generate money and wealth. Only then can we think about taxation and create appropriate laws.
It is not just about the finance division or the NBR; other stakeholders need to step up. Together, we can build a tax system that is gender-sensitive and effective for both men and women.
We have exemptions, rules, regulations, and directives from the High Court, yet we still neglect them. This is why we are stuck. Civil society can help by raising awareness and acting as a lobby group to encourage policymakers to make the system effective.
Ferdaus Ara Begum
CEO of Business Initiative Leading Development
Women's tax-related issues have become highly significant. The government has announced several supportive tax policies to help women entrepreneurs enter the tax base and contribute effectively to their businesses. However, despite these efforts, many women entrepreneurs are unable to fully benefit from these policies.
Policy changes by the National Board of Revenue (NBR) can sometimes have a negative impact on small entrepreneurs, especially women.
Recently, the government altered a policy aimed at increasing the value-added tax (VAT), which may negatively affect small businesses. Previously, businesses with an annual turnover between Tk50 lakh and Tk3 crore paid a 4% turnover tax. The new policy reduces the threshold to Tk50 lakh, requiring many entrepreneurs to pay a 15% VAT.
Additionally, lowering the registration threshold from Tk50 lakh to Tk30 lakh has made it harder for small entrepreneurs. Currently, only 8% of companies registered with the Register of Joint Stock Companies and Firms (RJSC) pay taxes.
Rabiul Islam
Consultant, Asian Development Bank
When we discuss automation, we often overlook the fragmented nature of the system. We focus on adding e-Return to the system, but we do not consider how to ensure it is actually being collected and evaluated properly.
We need an integrated automation system, and the interim government can initiate this in partnership with Bangladesh Bank, other corporate companies, businesses, and taxpayers. Fair enforcement will not be possible without such a system.
Another key issue is the recent VAT imposition. From a behavioural economics standpoint, gaining taxpayers' trust requires transparency. Taxpayers need to see how much revenue is being collected and, more importantly, how it is being spent.
Right now, we do not have a system to track this effectively. It is crucial to establish a system that ensures transparency in both tax collection and spending. This transparency is vital for building trust and accountability.
