Bangladesh’s income tax legislation is rooted in the 1922 tax law, which was originally designed to administer the fiscal affairs of colonial India under British rule. Following independence, Bangladesh established its inaugural Income Tax law in 1984, drafted in English.
Later in 2023, a subsequent law was enacted by Parliament which was drafted in Bangla. However, it remains largely consistent with the framework of the 1984 Ordinance. The law is supported by rules, numerous statutory orders, and finance acts released every year in the national budget session in Parliament.
The income tax framework of the country has some serious structural inequities which deserves careful remediation.
Firstly, the tax authority and the taxpayers have a relationship of mutual distrust. The authority largely sees the taxpayers as willful evaders, not necessarily by explicit words but implicitly by their behaviour.
The taxpayers see the tax authority broadly as dishonest, inefficient, harassing, and disproportionately imposing. This, of course, sounds very harsh. But this is ground reality.
Interestingly, both viewpoints hold weight, as malpractices are prevalent on both sides of the equation.
Bangladesh currently maintains a notably low tax-to-GDP ratio relative to its neighbours, indicating that individuals and enterprises are contributing less in taxes than those in surrounding nations.
A frequent irregularity involves taxpayers concealing income to escape their obligations. To achieve this, businesses often prepare and submit fraudulent financial statements that underreport revenues or inflate expenses, allowing them to evade taxes. Facilitated by corrupt officials, many such enterprises operate for years through these deceptive practices.
The motivation behind these actions often stems from the perception that the national tax framework fails to provide a level playing field.
There is a hole in the system and when someone uses that hole, others are inclined to follow suit.
Local businesses frequently feel compelled to shake hands with corrupt networks to avoid being at a competitive disadvantage against rivals who conveniently evade taxes with the help of dishonest officials.
Consequently, while most multinational businesses often remain compliant, many domestic enterprises are either choosing or forced to or lured to tax evasion.
A troubling trend persists where tax compliant enterprises face arbitrary scrutiny from tax authorities, which results in diverting resources that should be focused on identifying and penalizing actual tax evaders.
Ultimately, while these malpractices satisfy the vested interests of certain businesses and dishonest officials, the state suffers the consequences.
Should the authorities effectively curb internal irregularities, business tax evasion would significantly go down. That hole in the system needs overhauling.
Evasion is rarely a solitary feat. Instead, it often emerges from a collusive and dishonest partnership between the taxpayer and the tax assessor.
A further persistent issue is the lack of parity in how the taxation system treats taxpayers compared to tax collectors.
When a taxpayer evades tax obligations, whether through negligence or intent, the authority recovers the outstanding amount with added penal interest.
Conversely, when assessment officers issue demand notices or assessment orders based on meritless or absurd grounds, the system rarely holds them accountable.
Due to these imbalances, taxpayers frequently find themselves left alone and without effective recourse, even when taking their cases to appeals or tax tribunals.
Aggrieved taxpayers seeking redress against the disputed assessments of tax officers must navigate a three-tiered appellate process:
A critical structural flaw exists in the first two stages, as they remain under the National Board of Revenue (NBR)'s jurisdiction and as a result, appeal verdicts are frequently driven by revenue collection targets rather than the legal merits of the case.
While the High Court offers a final recourse, the process is extremely slow except for the high-profile cases involving government interests.
To ensure justice on the basis of legal merit, the Taxes Appellate Tribunal should be granted independence from the NBR and its benches should be reconstituted to include judges, experienced chartered accountants, and prominent lawyers.
Such a reform would be conducive to providing proper remedy for the aggrieved taxpayers and alleviating the High Court's burden of piles of tax litigations.
These structural imbalances in the tax environment currently discourage foreign investments and frustrate the existing enterprises.
This tax environment is exacerbated by the parliamentary approval of incremental annual national budgets, which task the National Board of Revenue (NBR) with meeting increasingly ambitious revenue targets every year.
Despite a broad consensus that these targets are unachievable, the government continues to exert pressure on the NBR, which in turn passes that burden onto the existing taxpayers.
Instead of taxing the wealthy or those surfing outside the tax net, the tax authority finds it more convenient to squeeze the existing taxpayers.
This cycle is metaphorically similar to demanding more eggs from the same duck every year, regardless of its capacity.
In a nation like Bangladesh, which currently leads South Asia in inflation rate (9%), such tax pressures further diminish the already eroded purchasing power of its citizens.
These practical problems encourage potential taxpayers to stay out of the tax net as long as possible.
The practice of passing national budgets with retrospective tax rates severely restricts the ability of businesses to engage in effective tax planning.
Under this system, taxpayers remain uncertain about their exact liabilities at the start of the income year, granting the government an unfair advantage that creates a significant dilemma for entrepreneurs and enterprises.
To provide a stable environment where businesses can strategically plan their investment models, revenue projections, and tax obligations, the tax framework should remain fixed for a five-year span, allowing for only minimal annual revisions.
In today's hyper-connected world, driven by rapid technological progress, citizens can get updates and compare the taxation benchmarks and public service quality of advanced countries.
Bangladeshi taxpayers do not have clear visibility regarding the utilization of their tax contributions except for a statistical announcement every year.
Taxpayers pay tax during their active years of income, but the quality of public services that they receive largely remains the same for years.
Moreover, the prevailing administrative attitude still mirrors a colonial bureaucracy where taxpayers are expected to pay out of fear rather than civic duty, making the process feel more like legalized extortion, not contribution.
While developed nations foster the perception that taxes build the country and provide quality public services like healthcare, education, and transportation, the Bangladeshi authority unfortunately maintains a "tax police" mindset rather than acting as a "tax partner."
In emerging economies like Bangladesh, tax policing often stems from deep-seated institutional distrust and colonial legacy.
Authorities rely on heavy audits, steep penalties, disconnecting utility services, and criminal prosecution to enforce tax collection.
For example, Bangladesh tax authority can visit the premises of any company at any time for withholding tax audit under section 147 of the Income Tax Act, 2023 and they can fine the company Tk 50 lakh if they are obstructed and confiscate the computers of the relevant employees if necessary.
Now, the definition of the obstruction is arbitrary, and the tax authority defines it and they are giving the verdict. So, the authority is empowered to act like the police and the judge at the same time.
However, this fear-based approach is counterproductive. It frustrates the large businesses and alienates small businesses, drives economic activity further underground, and ultimately erodes the tax base.
Enforcement, instead of partnering, alone yields diminishing returns. It raises the cost of tax administration without developing a voluntary compliance culture.
The remedy is tax partnering -- a collaborative model where tax authorities educate taxpayers, simplify processes, and treat taxpayers as stakeholders rather than suspects.
The Rwanda experience has demonstrated that when taxpayers understand where their money goes, receive responsive service, and face simplified filing systems, voluntary compliance rises significantly.
Emerging economies must therefore shift from a punitive mindset to a partnership model -- not abandoning enforcement entirely, but making trust, transparency, and taxpayer education the first line of revenue policy.
The taxation service in Bangladesh currently lacks a specialized recruitment process, despite the field being deeply rooted in law and accounting.
Under the existing civil service framework, individuals with backgrounds in unrelated disciplines, such as philosophy, political science, or civil engineering, are eligible for appointment to the taxation cadre.
This absence of subject-matter expertise often results in senior officials with limited accounting proficiency overseeing complex tax assessments, leading to erroneous orders that trigger unnecessary disputes and litigation.
Ultimately, this lack of technical specialization across the taxation cadre and its support staff undermines the confidence of entrepreneurs, businesses, and foreign investors in the country's tax environment.
To mitigate the structural unfairness in Bangladesh’s taxation, it is imperative to rebuild the fiscal social contract -- the unwritten deal where citizens and enterprises pay taxes in exchange for quality public services, mutual trust and respect.
If the authority treats the taxpayers as partners, taxpayers will also see tax as contribution, not liability.
If the structural inequities are addressed, which is very much doable, the perspective of the taxpayer and tax authority will change for the better. That is the point that Bangladesh must reach.
Asif Reza Akash is a certified accountant with over a decade of experience.
