Overdue tax overhaul crucial to beat 8pc GDP ratio trap

For far too long, Bangladesh has grappled with a persistently low revenue-to-GDP ratio — hovering around 8 per cent for decades — crippling its ability to finance essential public services and meet the demands of a growing population.

While the country has made impressive economic strides in recent years, this fiscal Achilles’ heel continues to undermine its long-term development aspirations.

This newspaper reported on Friday that the government’s renewed push to boost revenue collection is not only timely but also essential.

At the heart of this effort is the separation of tax policy from tax administration.

This long-overdue reform promises to foster a more transparent, equitable, and growth-oriented taxation system.

Such institutional restructuring, if implemented effectively, can reduce inefficiencies and rebuild public trust in the tax system.

The Medium- and Long-Term Revenue Strategy (MLTRS) adopted by the National Board of Revenue (NBR) sets a modest target of raising the revenue-to-GDP ratio to 10.5 per cent by FY2035.

While commendable as a starting point, this goal still falls short of the levels required to drive transformative investment in health, education, and infrastructure.

Equally concerning is the downward revision of the FY25 revenue target, a reflection of ongoing economic headwinds—subdued imports, generous tax exemptions on essential goods, and tight monetary conditions.

Nonetheless, the FY2025–26 budget lays a pragmatic foundation, setting a revenue target of Tk5.64 lakh crore—9 per cent of GDP—with NBR tasked with collecting nearly 89 per cent of that sum.

Complemented by non-tax revenues and modest foreign financing, the government aims to limit the fiscal deficit to 4 per cent of GDP, falling further to 3.73 per cent by FY28.

This restraint has come at a cost. Public spending, already among the world’s lowest, has been trimmed further.

ADP allocations—vital for development—have seen significant cuts, underscoring the government’s cautious fiscal stance.

While such prudence is understandable amid inflation and global uncertainty, it must not become a permanent excuse for underinvestment in critical sectors.

Bangladesh’s debt levels remain sustainable, and the gradual shift away from foreign borrowing is wise.

Yet real progress will depend on the government’s ability to widen the tax base, improve compliance, and prioritise high-impact spending.

Breaking free from the 8 per cent trap will not be easy — but it is both possible and necessary.

The time for half-measures has passed. What Bangladesh needs now is the political will to deliver bold, lasting fiscal reforms that will fuel inclusive and resilient growth for decades to come.