Low revenue-GDP ratio stokes worry

Bangladesh's lowly revenue-GDP ratio dipped further in the last financial year due mainly to economic downturn and sluggish business ambiance, coupled with unrest in the revenue-gathering entities.

The development has stoked concern among the policymakers as the next IMF review mission is not far away.

The revenue-to-GDP (gross domestic product) ratio dropped to 7.69 per cent in the FY2024-25 after having maintained a stand above 8.0 per cent in the last five years, according to the Ministry of Finance (MoF) data.

The aggregate revenue include tax revenue mobilised by the National Board of Revenue (NBR) and non-NBR revenue.

The tax-GDP ratio also declined to 6.7 per cent in FY25 from 7.39 per cent.

However, non-tax revenue marked a hefty growth by above 35 per cent in the bygone year due to minor adjustments to some government fees and charges.

Revenue collection from NBR, non-NBR and NTR sources came to Tk 4.34 trillion in FY25, accounting for a growth of 6.02 per cent, slipping from 11 per cent in FY24.

NBR and non-NBR tax receipts amounted to Tk 3.77 trillion last year, growing only by 2.0 per cent, according to the MoF data.

The aggregate national revenue grew by 12.8 per cent in the past year, which officials see as inevitable given the country's unstable business environment since the very start, evidentiary marked by political upheavals.

Revenue-board officials say the decline in tax-revenue collection may put the Bangladesh government in an awkward situation during the next review mission of the International Monetary Fund (IMF) on strings binding fund release from a lending-package deal.

A mission from the Washington-headquartered global lender is likely to arrive in the country in October for a reappraisal of Bangladesh's economic progress prior to releasing its next tranches of the $4.7 billion worth of budget-support credit.

The NTR receipt grew by 7.4 per cent in FY24 that made a quantum leap to 35.2 per cent in the past FY, the MoF data showed, on the back of the non-tax fiscal measures.

For the just-started financial year (FY 2025-26), the IMF has set a target for the NBR to collect an additional Tk 400- billion revenue through policy and administrative measures. Also under such exigencies, in the FY25, the NBR raised taxes on 100 products to collect additional revenue worth Tk 120 billion.

As per the latest target, the NBR will have to collect Tk 200 billion from income tax, Tk 180 billion from VAT, and Tk 20 billion from customs through fiscal- policy and-administrative measures.

The IMF lending agreement with Bangladesh provides for raising the tax-GDP ratio by 0.5 per cent in FY 24 and FY 25 and 0.7 per cent in FY 26.

However, the ratio of tax to GDP went on a reverse course last year, falling by 0.69 per cent, though it grew 0.09 per cent in FY24.

Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), thinks it's a national priority to increase revenue mobilisation to avert debt trap that may be stemming from bankrolling development recipe on borrowed money.

"If such plummeting revenue- mobilisation situation continues, Bangladesh would fall into a dangerous debt trap," he alerts.

"Though it is said that Bangladesh's debt-to-GDP ratio has not yet reached an alarming level, there is no reason to be relaxed as it depends on debt- carrying capacity of a country," the economist told the FE writer. He points out that Bangladesh's annual development programme (ADP) is now fully dependent on debt.

A matter of disquiet here is ratio of non-concessional loans is increasing fast and grace period for loan repayment getting shorter, he adds.

"If we cannot increase domestic revenue mobilisation, massive macroeconomic-management challenges may appear."

He sees poor domestic mobilisation as a major obstacle on Bangladesh's development journey, which the interim government could address giving due priority.

In this context, he notes that the reform initiatives of revenue administration backfired rather than boosting mobilisation.

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