Tax regime fraught with policy failures

Bangladesh's tax regime has so far remained outdated and archaic with both the National Board of Revenue (NBR) and tax payers -- corporate and individual -- either finding themselves at loggerheads or developing a chummy relationship. The net result of this is that those willing to sincerely pay their taxes face unnecessary harassment and often pay more than what is genuinely due while a larger number of taxable people resort to total evasion of taxes or tax avoidance. Here corruption by a section of NBR officials and their willing partners among tax payers are almost equally responsible. It is quite logical that at this crunch time honest businesses find tax rates high while those resort to dishonest practices in submitting their tax returns go away with their offence scot-free. Sure enough, the most important factor here is genuine auditing of corporate financial transactions and audit firms are also not beyond suspicion of malpractices in colluding with both businesses and the dishonest staff of the NBR.

No wonder, a Centre for Policy Dialogue (CPD) survey has found, 82 per cent businesses considering the current tax rate unfair, 75 per cent complaining about tax officials' lack of accountability and 72 per cent citing corruption regime in the NBR a serious challenge to business operation. Last but not least is the absence of a fully digital tax filing system. Now all the above complaints made by businesspeople are definitely point to an unhealthy tax environment and it would be interesting to note what the rest 18, 25 and 28 per cent respectively think of the prevailing tax system. Do they consider it satisfactory, positive or supportive to business or would they refrain from expressing their genuine view? Whatever their views may be, the fact remains that the tax-GDP ratio in Bangladesh has seen a decline for the last two consecutive fiscal years. It recorded a decrease from 7.8 in 2023 to 7.4 per cent in 2024. According to the Organisation of Economic Cooperation and Development (OECD), the ratio decreased from 7.3 per cent in 2022 to 7.2 in 2023 -- far below the Asia Pacific (APAC) average at 33.9 per cent. Worse, it declined to 6.6 per cent in 2025.

This speaks volume for the inability on the part of the NBR to track down the tax-evading individuals and enterprises. The crux of the problem lies here. The suggestion made by the keynote paper, presented at the CPD event, for lowering the corporate tax to 15 per cent may be reasonable but that does not show the hidden costs of arbitrary imposition of taxes and the complexity of multiple value added tax (VAT) system. These are areas that have to be transparent and leave no scope for malpractices.

All this, therefore, point to the need for bifurcation of the NBR into policy and implementation divisions in order to avoid collusion in tax return. In this context, the NBR's decision to keep suspended indefinitely the manual selection of VAT returns for auditing until it develops a proper software to introduce an automated and 'risk-based' audit system for VAT files is a step in the right direction. Hopefully, this will substantially help curb graft in the tax return process.