Policy Research Institute of Bangladesh (PRI) has proposed restructuring the country’s tax system by reducing the share of indirect taxes to 50 per cent of total revenue by 2030 to make the system less regressive and strengthen fiscal stability.
PRI said Bangladesh’s revenue structure is heavily dependent on indirect taxation, which accounts for about 70 per cent of total tax collection.
The recommendations were presented at a discussion titled “Monthly Macroeconomic Insights: Global Turbulences and a Rise in External Sector Vulnerabilities”, organised by PRI on Sunday in collaboration with the Australian government’s Department of Foreign Affairs and Trade (DFAT).
The institute proposed moving toward a balanced revenue structure where direct and indirect taxes contribute equally.
It also recommended shifting the revenue base away from trade taxes toward income and property taxation, while expanding the tax base instead of increasing tax rates.
PRI suggested capping the highest personal income tax marginal rate at 25 per cent to improve compliance.
It also proposed reducing the highest corporate income tax rate to 15 per cent for companies whose equity exceeds 35 per cent of total capital.
The institute recommended introducing a modern urban property tax capable of generating revenue equivalent to about 1 per cent of gross domestic product (GDP).
It also proposed moving toward a single value added tax (VAT) rate supported by a fully functioning input tax credit (ITC) system.
PRI said tax administration should be modernised through digitised filing and payment systems and by strengthening the National Board of Revenue (NBR) with improved technology and professional staffing.
The institute recommended simplifying tax codes, conducting targeted audits, taxing actual income instead of turnover and minimising exemptions.
Under the proposed framework, tax revenue could increase by about 3 per cent of GDP by fiscal year 2028.
Over the longer term, Bangladesh’s tax effort should rise to between 15 per cent and 20 per cent of GDP within the next decade.
PRI also recommended complementary fiscal reforms, including governance and pricing reforms in state owned enterprises (SOEs) to eliminate losses and generate between 1.5 per cent and 1.8 per cent of GDP in non tax revenue.
It further proposed rationalising energy subsidies, phasing out remittance and export subsidies and reducing interest costs by limiting domestic deficit financing.
