Despite two decades of sustained GDP growth transforming the country into a nearly $462 billion economy, its revenue system remains one of the weakest in the world. The tax-to-GDP ratio fell to just 6.7% in FY2024-25, according to the World Bank, less than half the 15% threshold that international institutions consider the minimum necessary to finance basic development needs. The IMF’s January 2026 Article IV Consultation with Bangladesh was blunt, noting that tax revenue to GDP ratio fell sharply in FY25, and urged the authorities to undertake bold tax policy reforms and strengthen tax administration and compliance. Meanwhile, the NBR’s own Medium and Long-Term Revenue Strategy (MLTRS), unveiled in April 2025, acknowledges a chronically low tax-to-GDP ratio hovering around 7-8% for years, with a target of reaching just 10.5% by FY2034-35, a goal that economists have already called inadequate.
Within this struggling revenue architecture, VAT remains the single largest source of tax income. According to the OECD’s Revenue Statistics in Asia and the Pacific 2025, VAT and goods and services taxes accounted for 38.2% of Bangladesh’s total tax revenue in 2023. Yet the effectiveness of VAT collection has long been in question. Estimates from multiple analyses suggest that Bangladesh’s VAT compliance gap, the difference between what should be collected and what actually is, ranges between 30 and 40%. For context, the European Union’s VAT compliance gap stood at 9.5% in 2023, amounting to €128 billion across 27 member states. If a comparatively well-administered bloc loses that much, the scale of leakage in Bangladesh’s largely informal, cash-dominated economy is alarming. Conservatively, tens of thousands of crores in VAT revenue are lost every year simply because the invoicing infrastructure cannot verify actual transactions.
A significant share of Bangladesh’s business transactions remains cash-based. Invoices are frequently not issued, sales are systematically understated, and fictitious invoices are generated to claim fraudulent input tax credits. The MLTRS itself admits that Bangladesh is still in the nascent stages of automation and that weak compliance risk management limits the NBR’s ability to proactively identify risks. Without a fundamental shift in how transactions are recorded and reported, no amount of rate adjustment will close this gap.
This is precisely where electronic invoicing, or e-invoicing, becomes transformative. E-invoicing refers to a system where every sales transaction automatically generates a structured digital invoice that is transmitted in real time to a central government server. Each invoice receives a unique verification ID, making it traceable, auditable, and tamper-resistant. The merchant, the buyer, and the tax authority all operate from the same verified data. There is no scope for under-reporting, no opportunity to fabricate transactions, and minimal room for human discretion, which, in Bangladesh’s context, also means less corruption at the field level.
The global evidence for e-invoicing is now overwhelming. Italy, the European pioneer, made B2B e-invoicing mandatory in January 2019 and extended it to all businesses by January 2024. The results were dramatic; Italy’s VAT compliance gap fell by 10.7% points between 2020 and 2021, the largest drop among all 27 EU member states, both in relative and absolute terms, contributing 32% of the entire EU’s gap reduction that year. The Italian tax authority reported that VAT evasion was nearly halved, falling from over €35 billion in 2015 to €17.8 billion in 2021, with e-invoicing alone generating an additional €1.7 to €2 billion annually in recovered revenue. In Latin America, Mexico’s phased e-invoicing rollout between 2011 and 2016 helped raise the country’s tax-to-GDP ratio from 12.6% to 16.2%, with VAT revenue increasing by roughly 50% during that period. Rwanda, a peer developing country, found through rigorous academic research published in the Journal of Development Economics (2025) that e-invoicing adoption increased firms’ net VAT payments and significantly improved audit efficiency. Malaysia, Saudi Arabia, Poland, France, Nigeria, Sri Lanka, and the Philippines are all in various stages of rollout. Bangladesh cannot afford to remain a spectator.
To its credit, the NBR initiated the Electronic Fiscal Device (EFD) programme in 2019, outsourcing deployment to Genex Infosys with a target of 60,000 installations per year and 300,000 over five years. EFDs were mandated across 25 sectors, including hotels, restaurants, retail stores, and jewellers. However, progress has been painfully slow. By most accounts, adoption remains far below target, and widespread non-compliance persists, with many businesses not using the devices or simply bypassing them, sometimes in alleged connivance with field officials. The EFD initiative, while maybe directionally correct, is not a substitute for a comprehensive, mandatory e-invoicing architecture that covers the full invoice lifecycle, integrates with the Integrated VAT Administration System (IVAS), and connects seamlessly with income tax and customs databases.
A credible five-year long implementation roadmap should proceed in three phases. In the first phase, mandatory e-invoicing should be introduced for large taxpayers and corporate entities whose transaction volumes make them the highest-impact targets. In the second phase, the mandate should extend to medium-sized enterprises with adequate technical support, training, and transitional subsidies. In the third phase, small businesses and the retail sector should be brought in through simplified mobile-based invoicing applications, an approach already being piloted in several African and Southeast Asian economies.
Artificial intelligence adds a critical multiplier. AI-driven analytics can identify suspicious transaction patterns, flag anomalies in real time, detect fake invoice chains, and enable risk-based taxpayer profiling. The OECD has noted that digital transformation can make tax systems less burdensome and more embedded in existing software. For Bangladesh, AI-augmented monitoring could dramatically improve enforcement without proportionally increasing headcount.
The investment required is modest relative to the payoff, especially when it’s done engaging experienced and domain-specific expert domestic techno-commercial solution providers. International experience suggests that the fiscal return on e-invoicing infrastructure typically exceeds the cost within one to two years. If Bangladesh can narrow its VAT compliance gap from an estimated 35-40% to even 15% over a five-year horizon, a conservative target given Italy’s experience, the additional annual revenue could run into tens of thousands of crores, fundamentally changing the country’s fiscal pathway. This is not simply speculative arithmetic. It is the documented experience of countries at every income level that have made the transition.
But technology alone is not sufficient. Successful implementation demands political will, legal reform, and true public-private partnership. Businesses must be persuaded that e-invoicing creates a level playing field. The new structure must reduce compliance costs so that digitisation is seen as an enabler, not an imposition.
Bangladesh is approaching its scheduled LDC graduation in 2026 (though it sought to be deferred) at a time when its fiscal foundations are weaker than they should be. The World Bank projects GDP growth of just 3.3% in the upcoming fiscal year; the IMF warns that risks are tilted to the downside. In this environment, e-invoicing is not just a technological upgrade; it is a calculated economic reform that we propose. It is the single most cost-effective intervention available to meaningfully expand the domestic revenue base without raising tax rates. The time for pilot projects and incremental targets is over. Bangladesh needs a bold, time-bound national e-invoicing mandate, and it needs it now.
Enamul Hafiz Latifee, Trade and Policy Development Economist, Lifetime Member, Bangladesh Economic Association, [email protected].
Dr. Md. Abdur Rouf, Former Member, National Board of Revenue and Chairman, Bangladesh VAT Professionals Forum, [email protected].
