Bangladesh faces slower growth, pressure on public finances and shocks from outside its control. A new administration in Dhaka has put greater emphasis on good governance, private-sector development, digital transformation, and job creation, while Bangladesh is also preparing for graduation from least-developed country status.
Meeting these challenges will require Bangladesh to rely more on its own revenue. Domestic revenue mobilisation means generating its own financial resources — mainly taxes — to finance economic and social investment, including schools, hospitals, roads, social protection, and other development needs. External support is important for major investments or crises, but reliable tax revenue gives a country greater freedom to set priorities, invest in development objectives, and mitigate the impacts of changing external risks.
Bangladesh’s tax collection remains low. Tax revenue equalled 6.9 percent of gross domestic product (GDP) in the fiscal year ended June 30, 2025 — the lowest ratio among developing economies in Asia and the Pacific. Low revenue restricts spending on development and public services. Meanwhile, debt-service payments — the interest and principal repaid on public borrowing — doubled between FY2021 and FY2025, leaving less room for priority investments.
This combination of low revenue and growing debt-service costs underscores the urgency of strengthening tax collection capacity. The government aims to increase the tax-to-GDP ratio to 15 percent by FY2035. To achieve this target, it needs a broader tax base, better administration, and greater trust between taxpayers and the government.
Bangladesh’s challenge is not mainly low tax rates. In fact, statutory corporate income tax and the standard value-added tax (VAT) rates in Bangladesh are broadly comparable to peer economies.
However, the issue is the extensive use of tax expenditures, including exemptions, reduced rates, deductions, and other forms of tax relief, which is, in effect, a public subsidy delivered through the tax system rather than a direct budget payment.
These measures may aim to attract investment, support particular industries, or assist certain groups. But they also reduce public revenue, and can often be costlier than the benefits they deliver.
The NBR estimates that income tax expenditures were worth 3.56 percent of GDP in FY2020, 2.9 percent in FY2021, and 2.39 percent in FY2022. VAT expenditures were estimated at 3.3 percent of GDP in 2022. Taken together, the revenue not collected through these measures is almost as large as Bangladesh’s overall tax-to-GDP ratio.
Bangladesh, with support from development partners, is reviewing and reducing ineffective tax expenditures. In 2025, the NBR adopted a Tax Expenditure Policy Framework to strengthen oversight of tax expenditures, curb excessive use, and prevent them from being granted at the NBR’s discretion alone. The framework requires parliamentary approval to issue tax expenditures.
This reform can raise revenue and make the tax system more transparent and accountable. Its success will depend on consistent application and on regular assessment and reduction of unjustified tax expenditures. If Bangladesh effectively expands the tax base (for e.g., through the use of digitisation and better compliance), we estimate tax revenues could increase by 2.8 percentage points of GDP between FY2025 and FY2030.
Tax policy, tax administration, and governance must improve together. Reforms in tax policy will have little effect if the tax authority does not have the capacity to apply them properly.
A central challenge is fragmentation and silo operation within the NBR. Its Wings often operate separately, with fragmented information systems, multiple taxpayer identification systems, and limited information sharing and coordination. This reduces efficiency and makes it harder for the NBR to form a complete picture of taxpayer activity and compliance.
Although progress has been made, income-tax administration still relies heavily on manual processes. Digital systems should be designed around clear objectives and practical operating models. Alongside organisational reform and staff training in data analytics, digitalisation can improve data use and enable more targeted and effective compliance risk management for high-risk taxpayers.
Better taxpayer services should be central in tax administration reform. Broader outreach, transparency, and accountability within the NBR and across public financial management can build taxpayer trust and confidence.
Sustainable growth in tax revenue ultimately depends on voluntary compliance. People and businesses are more likely to comply when the tax administration is fair, transparent, and service-oriented. Coordinated improvements in policy, administration, and governance can strengthen Bangladesh’s ability to raise its own revenue and fund its own priorities.
Sameer Khatiwada is a macroeconomist serving as the Principal Public Management Economist within the Public Sector Management and Governance Sector Office under the Sectors Department at the Asian Development Bank (ADB).
Yuhei Chiba is a Public Sector Economist (Taxation) within the Public Sector Management and Governance Sector Office under the Sectors Department at the Asian Development Bank (ADB).
[ADB supports Bangladesh’s efforts at tax reform through its Strengthening Economic Management and Governance Program and Sustainable Economic Recovery Program.]
[The views expressed in this article are the authors’ own and do not necessarily reflect the position of The Daily Bonik Barta.]