The International Monetary Fund (IMF) has urged Bangladesh to raise its tax-to-GDP ratio to 9.2 percent in the 2026–27 fiscal year from less than 7 per cent, setting an ambitious benchmark under the country’s ongoing loan programme.
To meet this target, the National Board of Revenue (NBR) will need to collect Tk 6 lakh crore in revenue, representing a 44 percent year-on-year growth, according to tax officials.
This target appears challenging, given that revenue growth currently stands at around 14 percent, with collections expected to reach Tk 4.20 lakh crore by the end of the current fiscal year. This leaves a gap of about Tk 1.80 lakh crore that must be bridged next year.
Bangladesh’s tax-to-GDP ratio currently stands at 6.6 percent—one of the lowest in the world. However, NBR officials expect it to rise modestly to 7.6 percent by the end of this fiscal year.
To support the higher revenue target, the IMF has proposed a series of measures. These include increasing supplementary duties on luxury goods, phasing out sector-specific tax exemptions, and implementing a uniform 15 percent value-added tax (VAT) across goods and services.
NBR officials acknowledge that boosting revenue mobilisation is essential to finance the government’s growing expenditure needs. However, they admit that achieving such a steep increase will be “extremely challenging” given the current economic conditions.
They pointed to structural weaknesses in tax administration, particularly the heavy reliance on state-owned enterprises, which contribute nearly 55 percent of total revenue.
Many of these entities fail to pay taxes on time, accumulating significant arrears over the years. For example, the Bangladesh Petroleum Corporation alone owes nearly Tk 30,000 crore in unpaid dues.
Another concern is the limited expansion of the tax net and weak enforcement. Despite significant consumer spending, much of the potential VAT revenue remains untapped.
During the recent Eid-ul-Fitr shopping season, traders estimated sales at around Tk 2 lakh crore. If VAT had been properly enforced at an average rate of 7.5 percent, an additional Tk 15,000 crore could have been generated in revenue. However, much of it went uncollected.
Syed Mushfiqur Rahman, an NBR member overseeing VAT audits, said the revenue authority has launched several initiatives to strengthen tax collection and improve the tax-to-GDP ratio. These include forming three task forces to identify weaknesses in the system and recommend corrective measures.
“If the recommendations are implemented effectively, revenue collection is expected to improve,” he told TIMES of Bangladesh.
Economists, however, caution that while raising the tax-to-GDP ratio is essential for macroeconomic stability, the pace of adjustment must be realistic.
They argue that sudden increases in tax rates, particularly a uniform VAT, could fuel inflation and dampen consumption, especially when households and businesses are already under financial strain.
Instead, they recommend prioritising administrative reforms, widening the tax base, digitising compliance systems, and improving enforcement to reduce tax evasion.
“Bangladesh has significant untapped tax potential, but unlocking it requires institutional strengthening rather than simply raising rates,” said Zahid Hussain, former lead economist of the World Bank Dhaka office.
Without deep structural reforms, he warns, meeting the IMF’s ambitious revenue targets could prove difficult and complicate the country’s fiscal consolidation efforts in the years to come.
