When policy penalises digital behaviour, it risks reinforcing the very informality it seeks to eliminate
Bangladesh has made meaningful strides towards a digital, cash-light economy. Mobile financial services, digital wallets and formal banking channels have expanded access, improved transparency and enabled millions to participate in the financial system. Yet, the recent consideration by the National Board of Revenue (NBR) to impose additional taxes on banking transactions raises a fundamental question: are we about to tax the very behaviour we want to promote?
An already taxed financial ecosystem
Bangladesh’s financial system is already subject to multiple layers of taxation and charges. Depositors pay excise duty based on balance tiers, interest income is taxed and banking services carry VAT. In addition, users incur costs through card transactions, fund transfers, ATM withdrawals and embedded fees within digital financial services such as mobile wallets and merchant payments.
For an average individual or small business, participation in the formal financial system is therefore not cost-neutral. It carries a cumulative financial burden. Introducing a transaction-level tax does not operate independently; rather, it adds another layer to an already taxed ecosystem, increasing the marginal cost of staying within formal financial channels.
The behavioural inflection point: when digital becomes costly
A cashless society is not built on infrastructure alone; it is fundamentally driven by behavioural change. Users typically transition from cash to digital platforms gradually, initially for convenience, then through repeated usage that builds habit and eventually through trust in the system. In Bangladesh, a significant portion of the population remains in this transitional, habit-forming phase.
At such a stage, cost signals play a decisive role. When digital transactions become more expensive than cash, users respond rationally. Small-value payments begin to revert to cash, businesses increasingly prefer informal settlements and consumers reduce the frequency of digital transactions. More importantly, the perception of fairness in the system begins to erode. Formal participation starts to feel penalised, while informality remains frictionless. Once this behavioural shift sets in, reversing it becomes considerably difficult.
The structural challenge: a narrow and shallow tax base
Bangladesh’s tax-to-GDP ratio has declined to around 6.7–7 per cent in recent periods, placing it among the lowest globally and marking a significant drop from already modest historical levels. More importantly, this implies that only a small portion of national output is financed through domestic tax revenue, highlighting a continued reliance on borrowing and non-tax sources to sustain public expenditure.
The challenge is not merely the ratio, it is the depth of participation. Although over 12 million individuals hold Tax Identification Numbers (TINs), only around 4.5 to 5 million actually submit tax returns, leaving a majority of registered taxpayers outside effective compliance.
This reflects a structurally narrow and shallow tax base driven by informality and limited economic visibility. A tax on banking transactions does not address this issue. On the contrary, it risks pushing economic activity further into cash-based, untraceable channels, thereby undermining the very objective of expanding the tax base.
This creates a deeper policy risk. By discouraging digital transactions and pushing activity back into cash, a transaction tax may not strengthen revenue collection as intended, it may undermine it over time. Reduced traceability limits income visibility, weakens compliance and ultimately constrains the government’s ability to expand the tax base. In effect, taxing transactions risks shrinking the very foundation upon which sustainable tax collection depends.
The hidden cost of cash
Cash is often perceived as simple and costless, but this perception overlooks the significant systemic costs associated with a cash-heavy economy. These include the printing and distribution of currency, physical security and handling, ATM infrastructure and replenishment logistics and reconciliation inefficiencies across institutions.
Digital transactions, by contrast, substantially reduce these operational burdens. However, taxing digital channels while leaving cash transactions untaxed creates a distortion in incentives. It effectively makes the more expensive system—cash—appear cheaper, thereby discouraging the transition towards a more efficient financial ecosystem.
Why a cashless economy matters
A cashless or cash-light economy extends far beyond convenience, it is a foundational driver of economic efficiency and growth. Digital transactions generate traceable records that enhance transparency and reduce opportunities for tax evasion. They enable broader financial inclusion by integrating underserved populations into formal systems, thereby improving access to credit, savings and insurance.
Moreover, a digitally enabled payment ecosystem accelerates innovation across e-commerce, fintech and platform-based services, while also enhancing the effectiveness of government transfers and social protection mechanisms. A transaction tax risks slowing progress across all these dimensions simultaneously.
Global lessons: when policy backfires
International experience provides a cautionary perspective. Countries such as Pakistan, Uganda and Kenya have introduced various forms of transaction-based taxes. While the intent was to enhance revenue collection, the outcomes have been mixed and often counterproductive.
In many cases, revenue gains were limited or short-lived. More significantly, digital transaction growth slowed, particularly among lower-income segments. Users adapted by shifting towards cash or alternative, less visible channels. Instead of expanding the formal economy, such policies often reinforced informality. These experiences suggest that taxing transactions tends to reduce transparency rather than enhance it.
The ecosystem is ready—this is the inflection point
Bangladesh is currently at a pivotal moment in its digital evolution. The core components of a modern financial ecosystem are aligning. Mobile financial services have achieved widespread adoption, digital wallets are rapidly evolving, interoperability across platforms is improving and progress is being made towards seamless digital identity integration.
The convergence of identity, wallet infrastructure and connectivity positions Bangladesh to enable instant onboarding, frictionless transactions and large-scale economic traceability. This represents a rare inflection point, one that offers the opportunity to accelerate digital adoption at scale. Introducing additional friction at this stage risks delaying that momentum.
Expanding the tax net, not the tax burden
The more sustainable path to revenue mobilisation lies not in taxing transactions, but in expanding the tax base. A digitally enabled economy naturally facilitates this process by generating data that improves income visibility and compliance.
Policy can leverage this by adopting data-driven taxation mechanisms, encouraging the formalisation of small and medium enterprises through digital transaction histories and simplifying compliance processes to reduce entry barriers. Incentivising digital payments, rather than penalising them, can further accelerate participation. In this context, broadening the tax net by bringing more individuals and businesses into the system is far more effective than increasing the burden on those already compliant.
A critical enabling step in this transition is the development of a seamlessly integrated digital identity and financial wallet ecosystem. The ability to link verified identity with accessible digital wallets can significantly reduce onboarding friction, enable secure and efficient transactions and generate reliable economic footprints for individuals and enterprises.
Such integration not only accelerates the adoption of digital financial services but also strengthens the foundations for improved income visibility, targeted policy delivery and more effective tax administration. In this sense, a well-aligned digital identity and wallet infrastructure serves as a structural catalyst for both financial inclusion and sustainable domestic revenue mobilisation.
A policy misalignment
Bangladesh’s strategic priorities have consistently emphasised digital transformation, financial inclusion and economic formalisation. A tax on banking transactions runs counter to these objectives. It creates a disincentive for formal participation, reduces traceability and slows the adoption of digital financial services.
This is not merely a minor inconsistency, it represents a structural misalignment between policy intent and policy action.
The strategic choice ahead
Bangladesh stands at a defining moment in its economic trajectory. The foundations of a cashless economy are being established, supported by technological readiness, policy ambition and growing user adoption. However, these foundations remain sensitive to the incentives embedded within policy decisions.
Revenue mobilisation is undoubtedly important, particularly in a constrained fiscal environment. Yet, the manner in which revenue is generated will shape the long-term structure of the economy. Policies that discourage formal participation risk undermining the very base upon which sustainable revenue depends.
Conclusion: do not tax the transition
Taxing banking transactions may appear administratively convenient, but it carries significant long-term risks. It discourages digital adoption, reinforces informality and weakens the trajectory towards a more transparent and inclusive economy.
If Bangladesh is to realise the full potential of a cashless future, the policy direction must remain clear and consistent.
Digital transactions should be made more affordable than cash. Participation in the formal system should be encouraged, not penalised. And revenue growth should be driven by expanding the tax base, not increasing the burden on those already within it.
Do not tax the transition. Enable it.
The author is a senior transformation and governance professional with over 20 years of experience across telecom, digital ecosystems, financial services readiness and policy-influenced sectors. He currently serves in a leadership role at Banglalink and is actively engaged in executive coaching, stakeholder strategy and digital transformation initiatives. The views expressed in this article are solely those of the author and do not necessarily reflect the official position of any organisation or institution with which he is affiliated.
