Experts warned that Bangladesh’s heavy reliance on indirect taxes, particularly VAT, is widening inequality, increasing pressure on compliant businesses and contributing to inflationary risks.
They stressed that the tax system remains overly complex and costly, discouraging compliance and fueling informality.
Speakers also called for stronger political commitment to expand direct taxation, institutional reforms within the NBR, and a more balanced, incentive-driven tax structure to support growth and export diversification.
The call came at a roundtable titled “Overdependence on Indirect Taxes: Multifaceted Impacts on the Economy,” organised by Voice for Reform on Monday at Kawran Bazar in the capital.
In his keynote presentation, Director of SMAC Advisory Services Snehashish Barua said, “If we can successfully implement an e-invoicing project and introduce a cashless economy, it will become easier to track every transaction, which will help reduce VAT evasion.
He said that in a cashless economy, transactions can be traced, auditing processes become easier, input-output matching is simplified, compliance increases, and under-invoicing decreases.
Barua said increasing business costs would ultimately drive up product prices. He added that if compliance costs rise excessively, businesses may try to avoid compliance altogether.
Economic Reporters’ Forum President Daulat Akhtar Mala said that the existing VAT law is regressive. Since not everyone pays taxes, the government compensates by increasing VAT rates. As a result, compliant businesses come under additional pressure.
Former Head of Tax at Unilever Bangladesh Saeed Ahmed Khan said that many complex issues related to tax and VAT are creating obstacles for businesses. Even in the current system, customs duties are high, and on top of that there is a minimum assessable value. He said all of these need to be brought under an integrated system.
Policy Exchange Bangladesh Chairman M Masrur Reaz said Bangladesh does not suffer from a structural shortage of resources. As a result, many informal businesses are emerging because they try to avoid the tax net.
He added that tax policy should be designed in a way that does not create inequality. He noted that indirect taxes affect people across all income groups and, therefore, must be structured carefully to avoid exacerbating inequality.
He remarked, “We plan a budget without considering expenditure properly, and then later put pressure on the NBR to collect that money.”
Bangladesh Restaurant Owners Association Secretary General Imran Hossain said that when people are in opposition, they listen to their concerns carefully, but once they come into government, they no longer give them the same attention.
He described the overall tax system as being corrupt.
He added that before the budget, the NBR does not allocate proper time for sitting with representatives from multiple organisations at once to discuss and present demands. He said this is the ongoing practice.
Assistant Professor at the University of Dhaka, Rushad Faridi said that indirect tax is discriminatory.
He noted that around 70 per cent of Bangladesh’s revenue comes from this type of indirect taxation, which he argued is not a good model for revenue generation in the country.
He said that export diversification is not happening because there are no adequate incentives to support it.
He further said that heavy reliance on indirect taxes in the budget is a problem, as indirect tax depends on sales, which in turn depend on overall economic conditions.
He added that many informal sectors tend to become formal due to the structure of indirect taxation.
Former Member (VAT), National Board of Revenue Mohammad Fariduddin said that many statements are being made in various places, but no real action is being taken. He added that, in his view, VAT should not exceed 10 percent.
RAPID Executive Director MA Yusuf said that increasing direct tax requires strong political commitment. He added that since the enforcement capacity of the NBR is limited, the government must provide stronger support to strengthen implementation.
Voice for Reform Co-coordinator Fahim Mashroor presented several reform proposals which include setting the standard VAT rate at 7.5 per cent, introducing a VAT rate of over 25 per cent for luxury goods, and reassessing advance income tax on businesses to ensure that the amount of advance tax does not exceed the applicable corporate tax liability.
He also proposed removing advance income tax on the import of essential food items, abolishing the 20 per cent supplementary duty on mobile talk time, and expanding the tax net in the budget to increase the share of direct taxes to 40 per cent.
