Bangladesh can increase its annual revenue by $32.6 billion within the next four years by ensuring the electronic filing of tax returns, according to the Centre for Policy Dialogue (CPD). 

This potential revenue represents about 5 percent of the country’s gross domestic product (GDP), the independent think-tank stated at a dialogue on the digitalization of the taxation system.

The event, organized by the CPD in partnership with the European Union (EU), was held at the Lakeshore Hotel in Dhaka. Mustafizur Rahman, a distinguished fellow at the CPD, presented a paper suggesting that through comprehensive digitalization, Bangladesh could raise its tax revenue to GDP ratio to 16 percent by the fiscal year 2029-30. This would generate $167 billion in tax revenue by FY2030.

Bangladesh lags behind its neighbors in tax revenue generation. The revenue-to-GDP ratio declined from 10.99 percent in FY2010 to 8.26 percent in FY2023, with the FY2024 target set at 9.9 percent, a goal the CPD considers unlikely to be achieved. 

This shortfall highlights the nation’s growing reliance on loans to finance public expenditures.

The CPD emphasized that greater domestic resource mobilization is critical for meeting the increasing demands of public sector expenditure, ensuring equitable income distribution, and reducing dependence on both domestic and external borrowing. Prof. Rahman noted that the low revenue income forces the entire development budget to be financed by borrowed money, either domestic or external, leaving a little surplus in the revenue budget.

Despite rapid GDP growth and rising per capita income, Bangladesh has not seen a corresponding increase in tax revenue. This disparity is due to low tax elasticity and tax buoyancy, which reflect the inefficiency and poor responsiveness of revenue mobilization to GDP growth.

Rahman argued that digitalization could bridge these gaps by detecting tax avoidance, closing loopholes, ending exemptions, and reducing tax evasion. 

The CPD acknowledged that the National Board of Revenue (NBR) has implemented some basic IT and digital infrastructure. However, Rahman stressed that effective digitalization requires integrating digital, human, and institutional systems to achieve greater domestic resource mobilization.

To improve the effectiveness of the value-added tax (VAT) administration, the CPD suggested enhancing data analytics by incorporating additional data from transactions and third-party sources to identify revenue risks. 

Debapriya Bhattacharya, another distinguished fellow at the CPD, highlighted the influence of those who evade taxes and engage in money laundering, noting that it is an issue of political economy rather than just a technical problem.

NBR Chairman Abu Hena Rahmatul Muneem pointed out the challenges the NBR faces in meeting high revenue targets set by the finance division, which are often based on previous goals rather than actual collections. This pressure hampers the implementation of innovative ideas as the NBR strives to meet these unrealistic targets.

State Minister for Finance Waseqa Ayesha Khan reaffirmed the government’s political will to improve the tax system, stating that its commitment is evident from its active engagement in such discussions.