Bangladesh’s fiscal story has settled into an uneasy pattern. The economy grows, activity expands, transactions multiply — yet the state continues to struggle to convert that momentum into tax revenue.
The tax-to-GDP ratio has remained stuck at around 6.2 to 7.6 per cent for years, among the lowest globally. Each budget season brings higher revenue targets. Each fiscal year ends with a familiar outcome: a widening gap between ambition and collection.
The latest figures capture the scale of the disconnect. In FY25, the government collected Tk4.36 lakh crore against a target of Tk5.41 lakh crore, according to the Centre for Policy Dialogue (CPD), a Dhaka-based think tank.
In the first nine months of the fiscal year, collections stood at only Tk3.1 lakh crore — already trailing well behind the annual requirement.
The pattern has carried into FY26. Between July and March, the National Board of Revenue (NBR) collected Tk3.31 lakh crore, reflecting year-on-year growth of just 6.9 per cent. Yet to meet the annual target of Tk5.64 lakh crore, the system would now require an extraordinary 84.6 per cent surge in the final quarter — a level of acceleration that officials privately acknowledge is beyond realistic reach.
So, the question has shifted. It is no longer simply about missed targets, but about why the gap persists at all.
Inside the policy debate, one explanation comes up repeatedly — Bangladesh’s tax base is too narrow for the size of its economy.
Economist M Masrur Reaz, chairman of Policy Exchange Bangladesh, identifies a structural constraint. A large share of economic activity remains informal, outside formal taxation systems. Even within the formal economy, compliance is uneven — many tax identification number (TIN) holders do not file returns regularly, and fewer still contribute consistently.
But structure alone does not explain behaviour. He points to a system shaped by friction and fear: taxpayers wary of harassment, uncertain enforcement, and the perception that compliance brings scrutiny without fairness. In such conditions, avoidance becomes a reality.
Over time, another layer has built up on top of this narrow base — policy design.
Value added tax (VAT) exemptions, originally intended to support investment and strategic sectors, have expanded significantly. Reaz argues that instead of being tightly targeted and time-bound, they now reduce the effective tax base in a broad and often opaque way. The result is a system that narrows its own revenue capacity while expecting higher returns from those already inside it.
That imbalance becomes more visible when viewed through the lens of data — or the absence of it.
Dhaka University economics Professor Shahadat Siddique describes a deeper governance constraint.
“The state does not fully see the economy it is trying to tax.”
VAT systems, in principle, should capture a wide share of transactions. In practice, large portions of activity remain unrecorded, unverified, or disconnected across institutions. The result is not only leakage but what he calls structural invisibility — where income, ownership, and transactions exist in the economy but not in the state’s tax map.
That invisibility helps explain why Bangladesh remains far below regional benchmarks. Its tax-to-GDP ratio now stands below 7 per cent, compared with a South Asian average of 16–18 per cent, according to the Organisation for Economic Co-operation and Development.
The gap, Siddique argues, is less about economic capacity and more about institutional reach.
The missing link, several experts suggest, is data.
Without integrated information on households, assets, and businesses, the state struggles to build a full picture of taxable capacity. Even when data exists, it is often fragmented across agencies, preventing cross-verification and enabling leakage.
Chartered accountant Snehashish Barua places the focus on this technical gap. Expanding the tax net, he argues, is not only about enforcement but about integration — linking VAT, income tax, and customs records so inconsistencies can be detected in real time.
He also calls for tighter discipline around exemptions, arguing they must be tied to measurable performance and subjected to automatic expiry mechanisms through sunset clauses. Without that, exemptions risk becoming permanent erosion of the tax base rather than temporary policy tools.
If one side of the debate focuses on design and data, another focuses on discipline.
Former NBR chairman Abdul Majid argues that the problem is not ambition but execution. High revenue targets, he says, are necessary precisely because they force institutional pressure. Lower them, and the urgency to reform weakens.
But he also acknowledges a structural imbalance in enforcement. Compliant taxpayers often face closer scrutiny, while influential actors can exploit gaps in oversight. Meanwhile, significant revenue remains locked in long-running tax disputes in the judicial system, delaying realisation for years.
That tension — between ambition and delivery — is echoed from inside the tax administration itself.
Former VAT Policy Wing member of NBR Farid Uddin says Bangladesh’s failure to meet revenue targets is not new but structural. The economy generates enough taxable activity. The challenge is capturing it.
He points to slow progress in automation and digitalisation, noting that tax administration still operates with significant manual dependence and fragmented systems. Without deeper modernisation, he warns, the gap between economic reality and fiscal outcome will persist.
The government is eyeing 42 per cent revenue growth for the next fiscal year, compared with estimated actual collections this fiscal year.
Taken together, the explanations converge on a single point from different angles: Bangladesh’s revenue problem is not simply about raising more money but about building a system capable of seeing, capturing, and fairly taxing the economy it already has.
Until that changes, higher targets are likely to remain what they have become — an annual statement of intent rather than a reflection of fiscal reality.
