Bangladesh lost an estimated Tk1,07,132 crore in revenue in FY2022-23 due to a wide range of tax exemptions, rebates and concessional rates, highlighting the mounting fiscal cost of such incentives and the need for more disciplined management.
The latest Direct Tax Expenditure Report put the forgone amount at 2.39 per cent of gross domestic product (GDP), almost equivalent to the country’s total direct tax collection for the year.
In comparison, revenue losses were higher at Tk1,15,056 crore, or 2.9 per cent of GDP, in FY2021-22, the report, published recently, said.
A major portion of the tax expenditure came from corporate income tax incentives, which accounted for Tk73,989 crore, or roughly 69 per cent of the total.
The benefits were concentrated in a handful of sectors, notably microcredit and social welfare, power and energy, and the garments and textiles industry.
Among the largest recipients, the microcredit and social welfare sector alone accounted for Tk12,589 crore, representing more than 17 per cent of total corporate tax expenditures.
The power and energy sector followed with Tk7,987 crore.
Tax relief on share capital gains amounted to Tk6,254 crore, while the readymade garments, textiles and accessories sector received Tk5,829 crore. Incentives linked to economic zones and hi-tech industries totalled Tk4,638 crore.
Personal income tax concessions made up the remaining Tk33,143 crore, largely tied to salary-related relief measures.
The report described the tax breaks as departures from the standard tax structure that function as implicit subsidies designed to support economic and social priorities.
However, it said their effectiveness depends on careful design, regular assessment and alignment with national goals.
Recent budget measures have already begun addressing the issue, with authorities opting to withdraw certain long-standing exemptions and refrain from extending some expiring benefits.
Drawing on global practices, the report said countries differ in how they present and evaluate tax expenditures, ranging from multi-year projections in budget frameworks to standalone disclosures or treatment as subsidy equivalents.
It called for stronger analytical tools, including cost-benefit assessments and improved data systems, to ensure better policy outcomes.
The FY23 estimates were compiled during a period of administrative restructuring within the tax system, including jurisdictional changes and data transfers.
Due to data constraints, calculations relied partly on updated samples adjusted for nominal GDP growth, which may limit precision.
The report also outlined a framework aimed at measuring the scale of tax expenditures, supporting policy design with sector-specific insights, establishing regular monitoring mechanisms, and improving transparency through wider public disclosure.
Looking ahead, it proposed a reform agenda centred on rationalisation and accountability.
It recommended phasing out poorly targeted incentives through time-bound measures and sunset clauses, while ensuring that remaining benefits are aligned with priorities such as export diversification, green transition, small and medium enterprise (SME) development, gender inclusion and balanced regional growth, without increasing headline tax rates.
The report also said sustained reporting and ongoing reforms are gradually bringing Bangladesh in line with international standards.
With greater automation and improved data availability, future estimates are expected to be more precise and policy-relevant.
As Bangladesh faces mounting financing needs, pressure on subsidies and external debt challenges, the report suggested that reforming tax expenditures could significantly strengthen domestic resource mobilisation.
Properly designed incentives, such as those supporting climate-resilient infrastructure or digital entrepreneurship, could help balance revenue goals with growth, equity and long-term development objectives.
