Bangladesh risks stability from indirect taxes

Bangladesh’s overdependence on indirect taxation could pose serious economic challenges and restrict long-term development, Policy Exchange Bangladesh Chairman M Masrur Reaz has warned.

Speaking at a roundtable titled “Overdependence on Indirect Taxes: Multifaceted Impacts on the Economy”, organised by Voice for Reform at BDBL Bhaban in Karwan Bazar on Monday, Reaz described the country’s tax system as regressive and ineffective in reducing poverty.

“Our tax structure relies heavily on value-added tax (VAT) and customs duties.

Under such a framework, achieving inclusive growth and prosperity will be difficult,” he said, highlighting that a significant portion of government revenue comes from VAT and import-related customs duties.

Reaz noted that as Bangladesh prepares to graduate from Least Developed Country (LDC) status, tariffs will need to be gradually reduced to comply with World Trade Organization regulations.

“Even today, nearly 27–28 per cent of government revenue comes from customs duties, but much of this will have to be phased out in the coming years,” he added.

He urged authorities to diversify revenue sources and move beyond traditional reliance on indirect taxes.

Reaz also criticised the multiple layers of taxation in the power and energy sector, which he said significantly inflate costs before products reach consumers.

Pointing to the high cost of doing business in Bangladesh, Reaz cited World Bank data showing that import costs per shipment stand at about $1,270, compared with $556 in Vietnam.

He also questioned the size of the national budget, noting it amounts to only 12–13 percent of GDP, limiting spending on health, education, and infrastructure.

Reaz called for a greater focus on direct taxation to strengthen fiscal management and expand government revenue capacity.