The Centre for Policy Dialogue (CPD) has urged the government to overhaul Bangladesh’s tax system, calling for a shift from a revenue-focused approach to a fairer and more inclusive framework in the FY2026–27 budget.
The call comes as Bangladesh prepares to graduate from Least Developed Country (LDC) status, a transition expected to bring major changes to trade and economic policies.
In a report published with Christian Aid, titled “Tax Justice for Graduating Bangladesh: The Case of Corporate Income Tax and Value Added Tax,”CPD highlighted major weaknesses in the current tax system.
Bangladesh’s tax-to-GDP ratio is now just 7.3 percent—the lowest in South Asia—showing the need for urgent reform, the report said. It warned that focusing only on increasing revenue, without fixing structural problems, could worsen inequality and slow social progress.
According to CPD, the country lost about Tk 226,236 crore in potential revenue due to tax evasion in FY2022–23. It also said that only 28–29 percent of possible Value Added Tax (VAT) is actually collected, mainly due to evasion and wide exemptions.
To address these issues, CPD proposed a tax system that gives equal importance to fairness, transparency, and efficiency. It stressed the need to reduce tax gaps, improve governance, and make the system easier to follow.
On corporate tax, CPD suggested aligning rates with the global minimum of 15 percent set by the OECD/G20. At the same time, it noted that many companies actually pay much higher effective rates—sometimes up to 60–70 percent—due to complex rules and extra costs. It recommended simplifying the system to make tax rates more reasonable and competitive.
The think tank also proposed replacing fixed tax benefits for listed companies with performance-based incentives linked to investment, exports, and job creation.
For VAT, CPD recommended simplifying the current system into three rates—standard, reduced, and zero—with a long-term goal of reducing it further to two rates. It also suggested lowering the standard VAT rate from 15 percent to 10 percent, but only if the tax base is widened and enforcement improves.
To support low-income people, the report called for using part of VAT revenue for social safety programmes and cash support. It also suggested that VAT collected from sectors like private healthcare and education should be reinvested to improve access for poorer communities.
CPD further recommended removing tax benefits for fossil fuel-based power producers and setting time limits on all tax exemptions. Export cash incentives should be gradually replaced with internationally accepted alternatives as Bangladesh moves out of LDC status.
To improve tax management, CPD suggested using data analytics and digital tools, and creating a system to share information between the National Board of Revenue (NBR), Bangladesh Bank, and banks. It also proposed making Electronic Fiscal Devices mandatory for businesses.
The report called for separating tax policy and tax collection within the NBR, and creating a separate body to handle tax refunds to ensure faster and fairer processing.
It also highlighted the pressure of advance tax payments on small and medium enterprises, suggesting these should be removed. CPD recommended expanding the number of active taxpayers, removing inactive companies from records, and bringing new sectors like the gig economy into the tax net.
To build better tax habits, the think tank suggested introducing tax education in schools and making repeated failure to file tax returns a punishable offence.
CPD said these reforms are essential not just to raise revenue, but to build a fair and strong economy as Bangladesh enters a new stage of development.