Bangladesh plans to reduce its average nominal tariff protection by 8 to 10 percentage points over the next three to five years under a tariff rationalisation programme. The move aims to lower input costs for exporters and manufacturers and improve competitiveness.
Outlined in the government’s five-year planning framework, the reform will focus on gradually reducing tariffs and para-tariffs, particularly on imported raw materials, intermediate goods and capital machinery used by industries.
The National Board of Revenue (NBR) will prepare a time-bound implementation plan for the National Tariff Policy 2023, including tariff schedules, revenue impact estimates and milestones.
Chairman and CEO of Policy Exchange M Masrur Reaz said the proposed reduction is achievable and necessary as Bangladesh has one of the highest tariff protection levels among South Asian economies, creating concerns for a country that relies heavily on imported inputs for manufacturing.
Reform targets high input costs
“Bangladesh has to import a lot for export-oriented and local manufacturing,” Reaz said, adding that high tariffs on imported inputs raise production, business and trade costs, weakening the competitiveness of Bangladeshi products in international markets.
The concern is supported by Policy Research Institute of Bangladesh (PRI) research, which shows Bangladesh’s average tariff is around 28 per cent, compared with 7.2 per cent for lower-middle-income countries and 6 per cent globally.
PRI said the high protection regime has created an “anti-export bias”, favouring domestic sales over exports. It found an average anti-export bias ratio of 1.209 across 1,377 non-RMG products.
The institute said Bangladesh’s trade policy has created a dual system, with the RMG sector benefiting from a relatively free-trade regime while other export sectors face restrictive import policies and complex tariffs. RMG accounts for about 84 per cent of exports, with diversification efforts producing limited results.
The first phase of reform will focus on distortionary para-tariffs affecting export-oriented and potential export sectors, particularly intermediate goods, capital machinery and raw materials.
Reaz said tariff reform should prioritise imported inputs over finished products.
“Tariffs on finished goods can also be reduced, but that should be done gradually. The initial focus should be on raw materials and intermediate goods,” he said.
He said export-oriented industries, the digital economy and domestic manufacturing sectors dependent on imported inputs are expected to benefit from tariff rationalisation.
Revenue challenge and long-term reform
The reform also presents a challenge for the government over replacing revenue collected through import-related taxes.
The planning framework calls for an independent assessment of revenue implications and compensating measures, including stronger VAT compliance, wider income-tax coverage, customs automation and risk-based enforcement.
“Relying on tariffs for revenue collection is no longer sustainable in this era,” Reaz said, adding that Bangladesh needs to expand direct taxation.
However, PRI research suggests tariff reduction does not necessarily lead to revenue losses. Between FY1992 and FY2000, Bangladesh’s nominal protection rate fell from 73.32 per cent to 29.09 per cent, while import values more than doubled and total revenue collection increased.
Revenue grew by about 11 per cent annually during the period, according to PRI analysis.
The reform push comes as Bangladesh faces pressure to reduce trade taxes following LDC graduation and future trade agreements.
“Tariffs cannot be relied upon as a source of revenue collection,” Reaz said.
The longer-term plan seeks to reduce dependence on border taxes by strengthening domestic tax administration through improved taxpayer identification, better audits, automation and expansion of the income-tax base.
PRI analysis shows customs duty cuts alone may not be enough to liberalise the tariff regime. While customs duties have declined over three decades, para-tariffs have increased, pushing the average nominal protection rate from 23.9 per cent in FY2010 to around 27.9 per cent in FY2026.
Over the three-to-five-year reform period, the plan targets a comprehensive tariff rationalisation programme to cut average nominal protection by at least 8 to 10 percentage points, subject to revenue sustainability.
It also proposes streamlining para-tariffs into limited, transparent and purpose-specific instruments and establishing a permanent tariff review mechanism within NBR to assess their impact on export competitiveness, input costs, consumer welfare and revenue sustainability.
PRI said restrictive trade policies can discourage export-oriented foreign direct investment as investors favour open, predictable and trade-neutral regimes.
Bangladesh’s FDI inflows remain around 1 per cent of GDP, while countries such as Vietnam and Thailand have attracted larger manufacturing-oriented investment integrated into global value chains.
PRI also found that consumers often pay 50 to 100 per cent above world prices for protected products as tariffs raise the prices of imported goods and domestic substitutes. The institute estimated the total protection cost to consumers at about 6.3 per cent of GDP in FY2020.
