The Centre for Policy Dialogue (CPD) has urged a fundamental overhaul of Bangladesh’s tax system ahead of the FY2026–27 budget, warning that the country’s tax-to-GDP ratio remains at just 7.3 percent, the lowest in Asia.
In a recently published policy brief titled “Tax Justice for Graduating Bangladesh: The Case of Corporate Income Tax and Value Added Tax,” CPD and Christian Aid (CA) jointly called for a shift from a narrow revenue-driven model to a broader tax justice framework. It said the system must prioritise equitable financing, reduced regressivity, curbing revenue leakage and stronger accountability.
The report was authored by Khondaker Golam Moazzem, Tamim Ahmed, Maleehah Sabah Ali, Sami Mohammad and Mohammad Iftekharul Islam.
The report estimated that Bangladesh lost Tk226,236 crore in potential tax revenue in FY2022–23 due to tax evasion alone. It also said VAT collection stands at only 28 to 29 percent of its potential, mainly due to widespread evasion and excessive exemptions.
The report noted that the administration led by the Bangladesh Nationalist Party (BNP) has pledged to raise the tax-to-GDP ratio to 10 percent in the medium term and 15 percent by 2035.
CPD cautioned that revenue-driven targets without structural reforms could deepen inequality and slow social progress. It said persistent focus on collection without fixing systemic weaknesses risks widening disparities.
On corporate taxation, CPD recommended gradually aligning Bangladesh’s corporate income tax (CIT) rate with the OECD/G20 global minimum threshold of 15 percent for both export and non-export sectors.
It also highlighted that effective tax rates on corporations often exceed statutory rates, reaching 60 to 70 percent in some cases due to disallowed deductions, compliance costs and administrative inconsistencies. The average effective CIT rate stands at around 31 percent for listed firms and about 33.5 percent for non-listed firms. CPD suggested bringing these rates down to more competitive levels.
The think tank also proposed replacing the current reduced flat tax rate for listed companies with performance-based incentives linked to investment, exports and job creation.
On VAT, CPD acknowledged its regressive nature and recommended merging the current eight-slab structure into a simplified three-tier system, with a long-term shift towards a two-tier model. It also suggested reducing the standard VAT rate from 15 percent to 10 percent, alongside stronger enforcement and broader tax coverage.
The report called for earmarking part of VAT revenue for cash transfers and social safety nets for low-income groups. It also said VAT collected from private health and education sectors should be reinvested to improve access for disadvantaged communities rather than merged into general revenue.
CPD urged the government to withdraw tax concessions for fossil-fuel-based power producers, saying such incentives favour high-emission producers and damage the environment. It also recommended introducing sunset clauses for all tax incentives to ensure industries transition to standard tax rates after a fixed period.
The think tank proposed a phased withdrawal of export cash incentives as Bangladesh prepares for LDC graduation, replacing them with WTO-compliant alternatives such as duty drawbacks and investment credits.
To modernise tax administration, CPD called for the use of data analytics and artificial intelligence, along with a secure two-way data-sharing system between the NBR, Bangladesh Bank and commercial banks. It also recommended making Electronic Fiscal Devices (EFDs) mandatory nationwide.
The report further urged Bangladesh to align with the OECD Base Erosion and Profit Shifting (BEPS) framework to tackle cross-border tax evasion.
Criticising institutional weaknesses, CPD described NBR data reporting as “highly problematic” due to inconsistencies and major gaps. It proposed a universal Unique TIN system, mandatory digital filing, standardised reporting and a fast-track digital tax dispute resolution system within 30 to 45 days.
It also recommended separating tax policy and tax collection functions within the NBR and creating an independent entity to handle tax refunds.
CPD suggested removing advance tax on SMEs, saying it creates financial pressure and discourages fair dispute resolution.
On tax culture, it proposed introducing tax literacy education at all academic levels and making repeated failure to file tax returns a criminal offence.
The report also recommended expanding the active taxpayer base to cover at least 59 per cent of registered companies, removing defunct firms from the registry, publishing tax compliance data publicly and bringing sectors such as the gig economy, entertainment industry and NGOs into the tax net.
CPD framed the reforms as essential for justice ahead of Bangladesh’s graduation from Least Developed Country (LDC) status, which will end key trade and aid preferences.
