Healthcare and education are two of the most critical sectors for any country. Yet, in FY24-25 Bangladesh allocated about 1.7% of its GDP on education and less than 1% on health.
This is far below what’s needed to meet the government’s development goals. Many people fail to access proper healthcare facilities and modernized medical
equipment, whereas the privileged ones opt for being treated abroad.
To ensure equal facilities for all, a country needs to mobilize domestic resources,which can be done through tax revenue collection. Through domestic resource mobilization (DRM), countries accelerate their economic growth by raising and spending their own funds for public goods and services, like schools, hospitals, clean water, electricity, and roads -- all critical to helping people rise out of poverty.
For Bangladesh, building a self-sufficient future is more than just policies, it’s a way to secure a better tomorrow. However, this hope is fading because the country’s tax-to-GDP ratio was only 7.3% in FY23, one of the lowest in the world. Despite efforts to improve this, it has barely changed and has been dropping over the years. For instance it was 7.54% in FY22 and 7.64% in FY21.
The result? Bangladesh still relies on foreign aid, and many people continue to suffer from poverty and inequality.
Big hurdles and new reforms
But reforming the tax system in Bangladesh is no easy task. Political challenges and corruption have made it difficult to push through much-needed reforms. For the last 15 years, corruption and tax evasion by influential people have further delayed progress. This is particularly problematic because without a well-
functioning tax system, Bangladesh will continue to struggle to meet its sustainable development goals.
One of the biggest hurdles is reforming the National Board of Revenue (NBR), which has been the face of corrupted employees for several years, from illegally waiving VAT to help accumulate wealth. This has eroded the public trust, making them discouraged to pay taxes to the government. Tackling this issue is not just about enforcing zero tolerance for corruption; it’s about fundamentally restructuring the NBR itself.
While immediate reforms to the NBR are essential, the interim government is also focusing on raising non-tax revenue (NTR) to finance the national budget. It involves increasing fees for public services provided by the government. This decision is economically efficient for the time being. However, this approach does not seem sustainable and could significantly affect the underprivileged citizens.
Rather than relying on increased fees for services, which might disproportionately affect the most vulnerable, the government should consider focusing more on direct tax collection. In the face of rising inequality, the role of a progressive direct taxation system is extremely important. This means ensuring that those with similar incomes are taxed equally and that the wealthier contribute their fair share.
Why people aren’t paying tax?
A milestone was reached when Bangladesh surpassed one crore taxpayer identification numbers (TINs). But here’s the concerning news: Only 43 lakh
people filed their tax returns last year. This suggests many are getting TINs not because they plan to pay taxes, but because it’s required to access certain
services. This points to a deeper issue that needs addressing.
There are multiple reasons for this low rate of tax return submission. Manytaxpayers avoid filing taxes due to the complexity of the process and fears of being harassed by tax officials. Moreover, they have to spend money because they have to hire someone to handle the complicated paperwork. People find the process time consuming and a hassle.
On top of that, Bangladesh’s large informal economy where businesses and workers operate outside the formal tax net complicates the matter. Many businesses and individuals in this sector hide their income to avoid paying taxes. This shows lack of awareness among citizens on the importance of filing taxes and thus reduces the government’s ability to collect the revenue.
The way forward
If Bangladesh is serious about boosting its domestic resources and reducing inequality, several changes are urgently needed.
In addition to focusing on direct taxation and broadening the tax net, digitalizing the process can reduce the scope for corruption and encourage more people to file returns voluntarily.
One brilliant initiative taken by NBR is launching an e-return service centre to assist taxpayers seeking to submit tax returns in compliance with regulations. Taxpayers could get assistance through phone calls on weekdays or via the official website.
Decentralizing tax responsibilities to local government institutes can help resource mobilization. Strengthening their role could lead to more localized development. However, this will require capacity building of officials with necessary skills and training on digital tools.
Moreover, the government should consider implementing an inheritance tax. Currently, there is no inheritance tax in Bangladesh, which is discriminatory to those paying taxes regularly on their income, registration of wealth, and other transactions.
Introducing inheritance tax would help decrease the disproportionate tax burden on citizens and ensure a proper distribution of wealth in Bangladesh. Although it is difficult to implement, as wealthy people will find ways to evade tax, the government must take it into account.
Lastly, citizen awareness is essential for the long-term success of any tax reform. Platforms must highlight the benefits of paying taxes, such as better public services, helping to build a sense of responsibility among citizens. When the digitized tax revenue process will be up to speed, initiatives to spread the news with advertisements must also be considered.
The interim government’s decision to raise non-tax revenue through increased service fees may provide short-term relief, but it’s not a sustainable solution. Bangladesh must look beyond quick fixes and focus on the long-term goal of creating a fair, efficient, and transparent tax system.
By focusing on a strong tax framework and a more inclusive society, Bangladesh 2.0 can lay the foundation for a future that is not only more prosperous but also more just.
Shabnam Sultana is a Social Activist and Research Enthusiast. Email: [email protected].
