BB eyes 3-3.5 pp rise through digitisation

Bangladesh Bank (BB) has taken several initiatives to accelerate the digitisation of financial transactions to curb corruption, reduce transaction costs and boost revenue mobilisation, targeting an increase of 3 to 3.5 percentage points (pp) in the country’s tax-to-GDP ratio within the next two years.

Bangladesh’s tax-to-GDP ratio, based on provisional National Board of Revenue (NBR) collection data, stood at 6.78 per cent in the fiscal year 2025-26, up from 6.70 per cent in FY2024-25, reports BSS.

“Comprehensive digitisation could widen the tax base, improve transparency and bring more economic activities under the formal financial system,” said Md. Sirajul Islam, executive director of Bangladesh Bank.

Sirajul Islam said Pakistan had made significant progress in increasing its tax-to-GDP ratio over the past two fiscal years by accelerating the digitisation of its transaction processes.

According to Pakistan’s Federal Board of Revenue (FBR), the country’s tax-to-GDP ratio rose from 8.8 per cent to 10.3 per cent over the last two fiscal years.

Through full digitisation, Sirajul Islam said Bangladesh could also improve revenue mobilisation by accelerating the transition from cash-based transactions to digital payments.

He said the initiative would help reduce corruption and transaction costs while strengthening the government’s capacity to collect taxes through more transparent and traceable economic activities.

As part of the drive, Bangladesh Bank is set to introduce person-to-person (P2P) money transfers through Bangla QR from November 1, allowing customers to transfer money between participating bank and mobile financial service accounts by scanning another person’s QR code or uploading its image through their mobile applications.

The new facility is expected to expand the use of digital payments beyond merchant transactions, making it easier for individuals, small traders and informal-sector workers to send and receive money without relying on cash.

Bangladesh Bank has also directed banks, mobile financial service providers, payment service providers and payment system operators to integrate the necessary features into their applications to facilitate the service.

The central bank has taken several measures to make digital transactions more affordable. From October 1, 2026, it set the interchange reimbursement fee for Bangla QR transactions at zero and introduced immediate settlement of payments to merchants.

These measures are intended to reduce transaction costs and encourage wider adoption, particularly among small businesses.

A 2022 International Monetary Fund (IMF) study, titled Bangladesh: Selected Issues, estimated that improving government digitalisation to the level of the best-performing countries could generate potential overall revenue gains equivalent to about 3 per cent of GDP through improved efficiency in value-added tax (VAT), personal income tax and corporate income tax collection.

The estimate provides a potential basis for the initiative, although it represents a modelled outcome rather than a guaranteed revenue increase within two years.

A Bangladesh Bank study, titled The Cost of Cash Study in Bangladesh: A Comparative Analysis of Cash and Digital Payment, estimated that cash transactions cost the economy Tk 1.70 trillion annually, equivalent to 3.24 per cent of GDP in 2023. In comparison, the annual cost of the digital payments ecosystem was estimated at Tk 59.64 billion, or 0.11 per cent of GDP.

The annual per capita cost of cash transactions was estimated at Tk 9,938, compared with Tk 348 for digital payments.

Sirajul Islam said cash management involved considerable expenses, starting with the import of raw materials required to print banknotes.

“Printing banknotes, transporting them and managing their circulation involve considerable costs for Bangladesh Bank,” he said.

He added that banknotes become old, damaged or torn through regular use and must be replaced, creating recurring expenses. Wider adoption of digital payments could reduce these costs while helping curb corruption, theft and the misuse of money.

The study estimated that banks bear Tk 368 billion in annual cash-related costs, equivalent to 0.70 percent of GDP, while consumers incur Tk 280 billion, or 0.53 per cent of GDP. Bangladesh Bank’s own cash-related costs were estimated at Tk 4 billion annually.

These expenses include printing and distributing currency, transporting and securing cash, maintaining bank branches and automated teller machines, and the time people spend withdrawing, carrying and handling money.

Digital transactions generate electronic records that could help tax authorities monitor economic activities, identify undeclared income and improve compliance with income tax and VAT regulations.

Achieving the proposed increase in the tax-to-GDP ratio would require efforts beyond digitising payments, including closer integration of banking records with tax administration, wider electronic VAT invoicing, stronger electronic tax filing and payment, and improved information-sharing among government agencies.

Greater coordination between Bangladesh Bank and the National Board of Revenue (NBR), commercial banks and payment service providers would be important to ensure that digital transaction records support effective revenue collection.

The fiscal benefits would also depend on bringing previously untaxed economic activities into the formal system and enforcing tax regulations effectively.

A successful transition towards a more transparent and digitally connected financial system could nevertheless reduce cash-management costs, improve accountability and strengthen domestic resource mobilisation to support the country’s development priorities.