The size of the informal economy as a percentage of official GDP decreased from 36% to 32.2% and the volume of tax loss due to the shadow economy increased four times to Tk84,200 crore, said the Centre for Policy Dialogue (CPD).
CPD said the government is losing a huge amount of potential revenue due to tax avoidance and evasion.
Shadow economy refers to illicit economic activity like black market transactions existing alongside a country's official economy.
According to CPD, that amount could be as low as Tk55,800 crore (lower bound) to as high as Tk292,500 crore (upper bound).
The study also revealed that the corporate tax rate in Bangladesh is higher than the global and South Asian average while the tax-GDP ratio is lower than in any South Asian country except Afghanistan.
CPD along with Christian Aid published their “Tax Transparency in the Corporate Sector: Impact on Public Revenue of the National Budget,” report on Monday.
Fahmida Khatun, executive director of CDP moderated the program.
Khondaker Golam Moazzem, research director of CPD presented the keynote paper regarding the study findings.
In his presentation, he said: “Tax exemption should be time-bound and target oriented. All transactions in the financial sector need to be coordinated. Related reports should be integrated. Digitization and internet-based transactions should be part of this.”
According to his presentation, the difference between the tax-GDP ratio and corporate tax rate is the highest in Bangladesh as compared to its South Asian peers.
On the other hand, the corporate tax rate in Bangladesh is higher than the global, Asia and South Asia average.
In terms of the corporate tax rate, the country's position is 18th while in terms of personal income tax and sales tax, Bangladesh is at the bottom.
The size of the informal economy is also decreasing marginally over time. It has decreased from 36% in 2002 to 30.2% in 2021.
Over ten years (2010-2021), the volume of tax loss due to the shadow economy increased by four times from Tk22,200 crore in 2010 to Tk84,200 crore in 2021.
Moazzem said: “Ultimate objective of the study is to identify tax losses, determine revenue gaps and fix targets for greater transparency and policy intervention.”
The report further stated that the size of the informal or shadow economy is one of the responsible factors for tax loss.
In 2021, Bangladesh's tax loss was Tk84,200 crore due to the shadow economy, which was 30.2% of the total GDP. It accounts for almost one-third of the total tax revenue collected in 2021. Tax loss due to the informal economy was close to 300% of the social safety and welfare expenditure.
“Tax loss due to tax evasion is estimated to be around eight times the social safety net and welfare expenditure and tax loss due to tax avoidance is estimated to be around over 200% of the health expenditure (25%),” he added.
“If the tax loss is 15% of the tax evasion, we are losing Tk41,800 crore and if that is 80%, this amount will be Tk223,000 crore,” he explained.
An informal economy (or shadow economy) is part of any economy that is neither taxed nor monitored by any form of government.
The amount of tax evasion is estimated to be eight times of the social safety net and welfare expenditure and the amount of tax avoidance is 200% of health expenditure.
However, with financial secrecy and an enabling environment for tax evasion/avoidance, Bangladesh has moved two notches up to 52nd rank among 141 nations in the Financial Secrecy Index 2022.
It means that the country became more secretive in helping individuals to hide their finances from the rule of law. But it also noted that the score of Bangladesh is reasonably good compared to developing and neigbouring countries.