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With Bangladesh’s tax-to-GDP ratio languishing at just 7.3 per cent--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 the FY2026–27 budget.
The policy brief, titled “Tax Justice for Graduating Bangladesh: The Case of Corporate Income Tax and Value Added Tax,” was recently published 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 important pillars.
According to CPD estimates, Bangladesh lost Tk 226,236 crore in potential tax revenue in FY2022–23 due to tax evasion alone.
Meanwhile, actual Value Added Tax (VAT) collection represents only 28–29 per cent of the country’s VAT potential, a gap the report attributes to widespread evasion and an overly generous exemption regime.
The report noted that the Bangladesh Nationalist Party (BNP)-led administration has pledged to raise the tax-to-GDP ratio to 10 per cent in the medium term and to 15 per cent by 2035.
CPD warned that focusing solely on revenue targets without structural reforms could deepen inequality and undermine social progress.
On corporate income tax, the think tank recommended gradually aligning Bangladesh’s statutory CIT rate with the OECD/G20 global minimum tax threshold of 15 per cent, ensuring that neither export-oriented nor non-export sectors fall below that floor.
It also observed that the effective tax rate faced by corporations often exceeds statutory rates—reaching as high as 60–70 per cent in some cases due to disallowed deductions, compliance costs, and administrative inconsistencies.
The effective corporate income tax rate currently averages around 31 per cent for listed firms and about 33.5 per cent for non-listed firms, it said, recommending a reduction to more competitive levels.
The report also proposed replacing the current flat reduced tax rate for listed companies with performance-based incentives linked to capital investment, export growth, or employment generation.
Acknowledging the regressive nature of VAT, CPD recommended consolidating the existing eight-slab VAT structure into a simplified three-tier system—standard, reduced, and zero rates—with a long-term goal of moving to a two-tier system.
It further proposed lowering the standard VAT rate from 15 per cent to 10 per cent, alongside measures to broaden the tax base and strengthen enforcement.
The report also suggested ring-fencing a portion of VAT revenue for cash transfers and social safety net programmes targeting low-income groups.
VAT collected from sensitive sectors such as private health and education should be reinvested to improve access for disadvantaged communities, rather than being absorbed into general revenue, it added.
CPD further recommended scrapping tax concessions for fossil-fuel-based power producers, saying such incentives disproportionately benefit high-emission producers while harming the environment.
It also called for introducing sunset clauses for all tax incentives, requiring industries to graduate to standard tax rates after a fixed period.
Export cash incentives, it said, should be gradually phased out as Bangladesh prepares for LDC graduation, with WTO-compliant alternatives such as duty drawbacks and investment credits introduced instead.
To modernise tax administration, CPD urged the government to deploy data analytics and artificial intelligence, and to establish a secure bidirectional data-sharing system linking the NBR, Bangladesh Bank, and commercial financial institutions. It also recommended making Electronic Fiscal Devices (EFDs) mandatory for all eligible businesses.
The think tank further advised Bangladesh to align with the OECD’s Base Erosion and Profit Shifting (BEPS) framework to address cross-border tax evasion.
CPD also criticised weaknesses in the NBR’s data management system, describing it as “highly problematic” due to inconsistencies and significant data gaps.
To address this, it recommended introducing a universal Unique TIN system, mandatory digital tax filing, standardised data reporting, and a digital tax dispute resolution system to settle cases within 30–45 days.
It also called for separating tax policy from tax collection within the NBR and establishing an independent entity to handle tax refunds.
The report suggested removing advance tax requirements for small and medium enterprises (SMEs) and ensuring businesses can access legal processes without financial coercion.
On broader tax culture, CPD recommended introducing mandatory tax literacy in educational institutions. It also suggested making repeated failure to file tax returns a criminal offence.
The report estimated that the NBR’s active taxpayer base should be expanded to cover at least 59 per cent of registered companies. It also proposed cleaning up the corporate registry, publicly disclosing tax compliance status, and bringing emerging sectors such as the gig economy, entertainment industry, and NGOs into the tax net.
CPD framed its recommendations as essential for ensuring tax justice ahead of Bangladesh’s graduation from Least Developed Country (LDC) status, which will result in the loss of several preferential trade and aid benefits.
The report was jointly authored by Khondaker Golam Moazzem, Tamim Ahmed, Maleehah Sabah Ali, Sami Mohammad, and Mohammad Iftekharul Islam of CPD.