TDS Desk:

The National Board of Revenue (NBR) has initiated measures to improve Bangladesh’s tax-GDP ratio, aiming to break free from the persistent culture of deficit budgets that has plagued the country since independence.

“Increasing the tax-GDP ratio remains a significant challenge for the NBR,” said an official document. “There is no alternative to bolstering internal revenue to overcome this challenge. A welfare-oriented and people-friendly income tax reform is crucial to achieving this objective.”

The NBR is committed to implementing a tax policy that is favorable to taxpayers, businesses, and investments, with the goal of establishing a robust tax culture in the country. Central to this policy is the gradual reduction of the tax burden through economic investment, increased tax-GDP ratio, and enhanced taxpayer compliance.

The document highlighted ongoing efforts to increase the contribution of direct taxes to 42 percent of total revenue by 2031 and 50 percent by 2041 through the enactment of taxpayer-friendly income tax policies. These efforts are supported by digital transformation initiatives, the expansion of the tax net, and the strengthening of administrative capacity to boost revenue collection from domestic sources.

Despite these efforts, a senior NBR official acknowledged the challenges in meeting the country’s financial needs. “As a developing nation, we are revenue-hungry and unable to meet the national exchequer’s demands,” he said.

Currently, Bangladesh’s tax-GDP ratio stands at 7.3 percent, significantly lower than neighboring countries such as India (12 percent), Nepal (17.5 percent), Bhutan (12.3 percent), and Pakistan (7.5 percent).

Newly appointed NBR Chairman Md Abdur Rahman Khan, in a recent meeting with senior officials, stressed the urgent need to focus on increasing the tax-GDP ratio and improving tax collection.

He mentioned that the budget of the country is formulated based on revenue collection by the NBR.

The NBR was given a high target for revenue collection by the Finance Ministry.

“Due to the target-driven activities, NBR could not do many things,” he told the meeting held on Sunday.

He noted that neither the Finance Ministry nor the NBR uses a forecasting model to scientifically determine the targets for the next fiscal year. “We still rely on a thumb rule,” he said, explaining that the Finance Ministry considers various macroeconomic indicators to set the total budget and deficit financing, which is then passed on to the NBR as tax revenue targets.

He advocated for a more data-driven approach to target-setting.

He also pointed out that Bangladesh scores poorly on the Public Expenditure and Financial Accountability (PEFA) framework, which is used internationally to measure the strength of a government’s financial management.

“Our PEFA score is very poor,” he told the meeting, underscoring the need for significant reforms to strengthen the country’s financial management and tax system.