Experts for urgent VAT, SD structure reforms amid revenue challenges

Economists and policy experts are calling for an immediate overhaul of Bangladesh’s tax architecture, warning that the current system is plagued by “institutional stagnation” and a “collapsing” revenue growth rate.

At a dialogue organized by the Policy Research Institute (PRI) titled “Rationalizing Supplementary Duty and VAT in Bangladesh,” speakers stressed that the country is facing a staggering revenue shortfall of approximately Tk10, 000crore in the current fiscal year alone.

The dialogue highlighted a critical gap between analytical knowledge and political action.

Chief guest Zakir Ahmed Khan, chairman of PKSF, noted that while tax reforms are “intellectually understood,” the failure lies in execution.

“The most important ‘low-hanging fruit’ for revenue improvement is enforcement of existing taxes not new measures,” Khan stated.

He pointed out that a significant portion of income remains untaxed because transactions, even within organized firms, are still largely settled in cash.

A central recommendation from the dialogue was the “NBR bifurcation” the institutional separation of tax policy from tax administration.

Tax Policy: Should reside in a dedicated unit with research capabilities and inter-agency coordination. Tax Administration (NBR): Should focus strictly on enforcement and modernization.

Former NBR member Fariduddin Ahmed criticized the board’s current state; noting that its annual reports are years out of date and its systems remain manual.

He alleged that customs officers often “enhance” declared prices to meet arbitrary targets, collecting roughly Tk15, 000crore annually through “arbitrary assessments” rather than proper taxation.

PRI chairman Zaidi Sattar emphasized that Bangladeshi consumers are paying significantly higher prices for goods compared to international levels, including neighboring India.

He attributed this to a “cascading” tax structure where high customs, regulatory, and supplementary duties (SD) inflate prices far beyond their revenue yield.

Keynote speaker Bazlul Haque Khondker added that Bangladesh’s “VAT productivity” the efficiency of collection relative to the tax base is among the lowest in the region.

He noted that revenue growth has plummeted from 21 per cent to just 2.2 per cent in FY25, with actual collections falling 20 per cent short of targets.

Experts argued that Supplementary Duties (SD) have become “unselective,” acting as a secondary trade tax rather than a tool to manage social costs.

Hafiz Chowdhury of M-Group Global recommended moving toward “specific taxes” based on harm content (e.g., sugar or tobacco volume) rather than value-based taxes.

Shamsul Huq Zahid noted that high regulatory duties on imported sugar are often used to protect inefficient state-owned enterprises rather than for health or revenue goals.

The volatility of the tax regime is also sending ripples through the investment climate.

Ahmet Zahit Erdem, finance head of 3J Coca-Cola Beverages, shared that the company’s Total Tax Incidence (TTI) jumped from 43 per cent to 54 per cent in just two years due to rapid hikes in minimum tax and SD.

“The projected versus actual outlook no longer aligns,” Erdem remarked, urging the government to focus on expanding the tax base rather than increasing rates on fully compliant multinational operators.

Zakir Hossain noted that the tax-to-GDP ratio has fallen below 7 per cent over three consecutive years.

He urged the NBR to publish sector-specific revenue data to allow for independent scrutiny and evidence-based policymaking, rather than relying on aggregate totals that obscure the true health of the economy.