Bangladesh’s indirect tax system is undermining revenue growth and discouraging investment due to structural flaws in value-added tax (VAT) and supplementary duty (SD), economists and policy experts said.
The concerns were raised at a roundtable titled “Rationalising Supplementary Duty and VAT in Bangladesh: Evidence, Challenges, and Reform Pathways,” organised by Policy Research Institute of Bangladesh (PRI) on Sunday.
World Bank Senior Public Sector Management Specialist Daniel Alvarez Estrada said tax instruments must align with clear policy goals. VAT should focus on revenue, income and property taxes on equity, excise on externalities, and trade taxes on protection, he said.
“The current system mixes these roles, reducing efficiency and clarity,” he said, calling for structured excise reform and better measurement of economic distortions.
PRI Chairman Zaidi Sattar said high import taxes, including customs duty, regulatory duty, and SD, are pushing up consumer prices. “Bangladesh’s consumer goods remain overpriced compared with international standards,” he said.
He said comparisons with India using purchasing power parity show significantly higher domestic price levels due to tax distortions. “Excessive supplementary duties may be pushing the system beyond optimal revenue levels,” he added.
Former National Board of Revenue (NBR) Member Fariduddin Ahmed said the system remains largely manual due to policy inertia. He said NBR reports are outdated, with the latest covering 2023, while later reports remain delayed or incomplete.
He said customs officials often adjust declared values to meet revenue targets, generating around Tk15,000 crore annually through non-standard assessments. He also highlighted a complex tariff structure with 113 rates and SD ranging from 5 per cent to 500 per cent.
PRI Research Director Bazlul Haque Khondker said applying SD and VAT on the same base creates cascading effects. He said global practice applies excise at a single stage and calculates VAT on a clean base.
“This simplifies compliance and improves revenue modelling,” he said, adding that revenue collection is about 20 per cent below revised targets and growth has dropped from 21 per cent to 2.2 per cent.
He said VAT productivity remains among the lowest in the region despite a standard rate of 15 per cent and pointed to a lack of micro-level data from NBR.
M Group Principal Hafiz Chowdhury said Bangladesh has blurred the distinction between VAT and excise taxes. He said excise should target harmful products such as tobacco and sugary drinks.
He recommended shifting to specific taxes based on product content and adopting digital compliance tools such as track-and-trace systems.
Palli Karma Sahayak Foundation (PKSF) Chairman Zakir Ahmed Khan said reforms are often understood but poorly implemented due to weak coordination and political constraints.
“Enforcing existing taxes is the most immediate way to increase revenue,” he said, calling for a dedicated tax policy unit while leaving enforcement to NBR.
He said Bangladesh faces a revenue shortfall of around Tk10,000 crore in the current fiscal year.
Financial Express Editor Shamsul Huq Zahid said regulatory duties on sugar, ranging from 30 to 40 per cent, are used to protect inefficient state-owned enterprises rather than serve revenue or health goals.
He said Bangladesh introduced VAT in South Asia in 1991 but now lags behind regional peers in efficiency.
Coca-Cola Finance Head Ahmet Zahit Erdem said total tax incidence has increased from 43 per cent to about 54 per cent due to multiple tax measures.
“This rising burden was not anticipated in investment planning and is affecting long-term decisions,” he said, urging policymakers to expand the tax base instead of raising rates on compliant businesses.
