Navigating Tax Policy Framework: Impact and Priorities for Critical Sectors

Policy Exchange Bangladesh organized a roundtable discussion titled "Navigating Tax Policy Framework: Impact and Priorities for Critical Sectors" on March 5, 2025, in Dhaka. During the discussions, the speakers highlighted the importance of implementing inclusive reforms and fostering a taxpayer-friendly environment to enhance revenue collection in the country. They emphasized that tax-related laws and policies should be investment-friendly and developed through consultations with key stakeholders. The conversation also addressed the challenges faced by both the government and the private sector in the domain of taxation. Below are some key excerpts from the roundtable discussion:

Dr. M Masrur Reaz

Chairman and CEO, Policy Exchange Bangladesh

Both revenue mobilization and investment play key roles in Bangladesh's growth aspirations. Job creation, export-led growth, and increased domestic consumption are all driven by investment. However, for investment to thrive, a favorable investment climate is essential, along with government spending to support the development of infrastructure, strengthen government capacity to provide services, and address many other essential factors. In this sense, revenue mobilization and private sector growth complement each other, as sound tax policies and effective revenue practices create an environment where investments can flourish. If investment grows, revenue can increase. With more revenue, the government can focus on developing infrastructure, improving skills, health, education, and enhancing services to citizens. This creates a virtuous cycle where each element supports the other. The objective of today’s effort is to explore how the private sector and the National Board of Revenue (NBR) can collaborate effectively. By working together, they can complement each other’s strengths in raising revenue, boosting investment, and improving the overall investment climate. Therefore, the main objective of today’s dialogue is to bring together key stakeholders.

Ahsan Khan Chowdhury

Chairman, Pran-RFL Group

To develop our agro-processing and agriculture sectors, it is crucial that the tax burden on these industries remains at a reasonable level. What is considered 'reasonable' will depend on our interaction with the government. We need to consider how much we aim to collect externally, how much consumers are willing to pay, and the price elasticity when it comes to taxation and its impact on consumers. I believe that if we engage in closer dialogue and listen to the industries, we can identify the roadblocks that are currently affecting our revenue sector. If we come together and adopt a more consultative approach, we can make informed decisions that will not only help improve revenue but also enhance the contribution of our consumers in the future.

Iqbal Chowdhury

Director & CEO, LafargeHolcim Bangladesh Limited

I would like to emphasize the importance of NBR having a dedicated research wing. Understanding each sector's scope will help assess industry profitability and identify key areas of focus. I believe NBR needs to monitor and execute plans over the next 6-9 months, or even a year, and we are here to support you. I request that we collaborate on the upcoming budget during this period. Consultative discussions can provide a comprehensive understanding of the economy, which will help maximize revenue control. This approach can significantly improve the tax-to-GDP ratio. We need a clear plan for the short-term, mid-term, and long-term to simplify processes and improve revenue. Automation is the future, and this requires structural plans and system integration to learn from past mistakes.

Kamran T. Rahman

President, MCCI

Tax reform is crucial for Bangladesh's sustainable growth. Bangladesh needs a more integrated tax policy to boost competitiveness in preparation for LDC graduation. The positive impacts of recent tax reforms remain unclear due to persistent structural challenges, which require immediate attention. Despite cuts in corporate tax rates across sectors, complex documentation requirements keep the effective tax rate high. Excessive disallowances of expenses and high withholding taxes prevent businesses from fully benefiting from reduced corporate tax rates. In practice, the corporate tax rate for public companies is often close to 50%. We urge the relevant authorities to address this issue. Heavy taxes limit reinvestment and growth, and withholding taxes are not refundable or adjustable against future liabilities. A minimum tax on sales, applied regardless of profit or loss, contradicts standard tax principles. Lower VAT rates and automation will improve tax compliance and revenue.

Monisha Abraham

Managing Director, BAT

The tobacco industry contributes 12% to the government’s tax revenue, with British American Tobacco accounting for 10%. In recent times, there was a significant increase in Supplementary Duty (SD) from 60% to 67% within a period of 7 months and this was done with a non-consultative approach.  This has a bearing on various stakeholders.  Firstly, the government itself, where the revenue from the industry has not met with their expectations. We believe that all industries need to contribute to the government revenue, however excise shocks such as this has a contradictory effect. Secondly, the industry has been heavily impacted and therefore its long term sustainability is at stake. While the WHO recommends a 75% tax on tobacco, Bangladesh’s rate is 83%, which is much higher than most countries. Margins have reduced and an added pressure of inflationary cost increases, have impacted its sustainability. Hence a structure reform of current excise model is required to ensure industry sustainability.  Apart from this, sharp and abrupt increases in excise and VAT has an impact on business confidence for all sectors in the country.  In order to drive a more conducive, business friendly environment for industries in Bangladesh, our suggestion and recommendations would therefore be to have a consultative process. This will help in finding solutions that benefit both the government and the industry in the long term. Additionally, to drive more transparency and create a level playing field, it would benefit industries if we were to get relevant industry data published on a regular basis.

Debabrata Roy Chowdhury

Company Secretary and Head of Legal & Taxation, Nestlé Bangladesh Limited

We are not only the largest food company in the world but also one of the highest taxpayers in Bangladesh for the last 8 years. Despite this, we face several challenges. One of the biggest is the effective tax rate, which has risen to 35-40%, a major factor in investment decisions. Non-refundable VAT and multiple rates prevent us from claiming input tax remedies in all sectors, which impacts us further. Finally, policy consistency is a concern. Investments are made based on existing policies, and sudden changes make it difficult to sustain investments. For example, we had planned an investment of 20 million Swiss francs for certain products but only made 2.5 million due to increasing taxes. A holistic approach to tax increases and considering the broader industry impact is essential.

Paul Holloway

Managing Director, JTI Bangladesh

Taxation in the tobacco sector is generally driven by health goals and budget needs. Howerver, rapid, unplanned tax hikes fuel illicit trade in this sector. For example, in Malaysia, a significant tax increase led to illicit trade making up 64% of the market, though it dropped to 53% after a seven-year tax freeze. Therefore, a gradual and predictable tax increase is essential. While drastic changes are not expected in the short term, a freeze would be appreciated. Current tax increases don’t effectively reduce consumption; they only expand the illicit market. Moreover, tobacco companies already pay up to 80% of the declared price in taxes, which is unsustainable.

Mahtab Uddin Ahmed

President, ICMAB

I appreciate the desire for automated tax systems, which can improve governance and reduce corruption. However, for automation to work effectively, it must be managed properly and carefully. My recommendation is that, while you push for strong automation in areas like tax and customs, you should set a rule for your team: no more than 5% of the files should be manually handled. Simply raising taxes won't solve the issue of revenue earnings, but increasing tax compliance will.

Zakir Hossain

Associate Editor, the Daily Samakal

Before increasing or decreasing taxes, if we take a more comprehensive approach, it would be beneficial for all the relevant stakeholders. Another important thing is that any order or regulation should be easily understandable by the media and general public.

Ariful Hoque

Director General, Bangladesh Investment Development Authority (BIDA)     

The current size of the economy is significant, but the foreign direct investment (FDI) inflow is much lower than expected. The target for FDI by 2041 is $50 billion, but last year, we received less than $2 billion. This highlights the need for reform in the system. Business planning heavily relies on predictable tax policies, and frequent changes in rates create uncertainty for industries. Investors consistently express concern about this unpredictability. To address this, we suggest regular meetings, perhaps quarterly, where government teams and private sector representatives can discuss issues and find solutions.

Farid Uddin

Former Member, National Board of Revenue (NBR)

Over the past four months, we, the advisory committee on NBR reform, have worked on various tax-related issues, consulting with different stakeholders and key publications. Key challenges identified include deficiencies in tax automation, high discretion in customs, and distortions in VAT collection, especially at the import stage. Additionally, there are issues with the ASYCUDA system. Recently, a World Bank publication clearly elaborated on some deficiencies in tax policy and tax automation. The reform committee also addressed the inconsistency in VAT rates, particularly for the SME sector. Therefore, we have identified most of the distortions in tax policy.

Md. Abdur Rahman Khan

Chairman, National Board of Revenue (NBR)

A complaint this year was the interim tax measures, especially the VAT adjustment ordinance, which lacked consultation. This was due to special circumstances, but I agree that it should not have happened. In the future, the NBR will be more consultative. Governance is key to driving effectiveness and efficiency in solving these issues. The lack of digitalization in tax systems hampers our ability to gather data and make informed analyses. We are working on improving this by digitizing and enhancing our system for more dynamic online tax returns.

We have recognized that revenue mobilization is extremely important for the country, as there is a growing expectation from the general public. On the other hand, our debt burden has already increased significantly and has become unsustainable. However, most revenue should come from VAT and income tax, not customs. Customs should focus on trade facilitation, not revenue collection.

Digitization is a priority. We are trying to capture performance data for tax officers and make processes more transparent. Small businesses struggle with complex tax systems, and I propose that NBR develops software for taxpayers to record receipts and payments, which would automatically generate VAT returns and annual accounts. I understand the challenges faced by the private sectors and am committed to listening and making gradual improvements. We hope to make practical, meaningful progress in the upcoming budget exercise.