Bangladesh’s national budget for the 2026-27 financial year does not provide a coherent framework for tax justice and fails to deliver sufficient reforms to ensure a fairer tax system, according to the Centre for Policy Dialogue (CPD).
The findings were presented on Thursday at a discussion titled ‘Tax Justice in the National Budget: Observations on Fiscal Proposals for FY2026-27’, held at the BRAC Centre in Dhaka.
Senior Research Associate Tamim Ahmed presented the study, while CPD Research Director Khondaker Golam Moazzem moderated the event, which was organised jointly with Christian Aid.
The report assessed the approved budget against four key principles of tax justice: equitable financing for development, reducing reliance on regressive taxation, preventing revenue leakage and strengthening accountable governance.
CPD said, “Bangladesh’s tax-to-GDP ratio has fallen to the lowest level in South Asia.”
While the BNP-led government has committed to increasing the ratio to 10 per cent in the medium term and 15 per cent by 2035, the organisation argued that simply raising revenue without addressing structural weaknesses could widen existing inequalities.
According to CPD estimates, Bangladesh lost around Tk2.26 lakh crore through tax evasion and tax avoidance during the 2022-23 financial year.
It also noted that actual Value Added Tax (VAT) collection reaches only around 28 to 29 per cent of its estimated potential.
The think tank expressed concern over the country’s continued dependence on indirect taxation.
It said, “VAT and other consumption-based taxes contribute around two-thirds of total National Board of Revenue (NBR) income, placing a heavier financial burden on lower-income households than on wealthier taxpayers.”
The budget’s continued reliance on VAT as its largest single source of revenue, accounting for around 38 per cent of projected collections, was highlighted as a major concern.
CPD welcomed some measures aimed at making income taxation more progressive, including a five-year personal income tax roadmap and plans to introduce a 35 per cent tax rate on annual incomes above Tk35 lakh from the 2028-29 financial year.
However, it argued that the existing tax-free income threshold of Tk3.75 lakh does not provide adequate relief for lower- and middle-income earners when adjusted for inflation.
The organisation also criticised the absence of proposals to introduce an inheritance tax and questioned the government’s decision not to reduce the standard VAT rate from 15 per cent to 10 per cent, which it believes would improve competitiveness.
On efforts to improve tax administration, CPD acknowledged several positive initiatives.
These include automated audit selection, making Taxpayer Identification Numbers (TINs) compulsory for bank account holders, expanding data sharing between the NBR, National Identity database, banks and utility providers, and the decision not to introduce another tax amnesty scheme.
Nevertheless, the report identified several shortcomings. These included the absence of a comprehensive tax expenditure report, no detailed roadmap for tariff reforms ahead of Bangladesh’s graduation from Least Developed Country (LDC) status, a lack of penalties for taxpayers who fail to cooperate during audits, and the continuation of tax incentives for fossil fuel-based power generation.
CPD also questioned the decision to legalise investments in real estate using undisclosed income, arguing that such measures could undermine fairness by rewarding tax non-compliance.
While welcoming the separation of revenue policy from tax administration and the 66 per cent increase in the NBR’s budget allocation, the organisation said, “further improvements in governance are needed.”
It pointed to the lack of nationwide deployment of Electronic Fiscal Devices (EFDs), limited progress in the digital transformation of supporting institutions and only a modest increase in funding for the Competition Commission.
To strengthen the tax system, CPD recommended adjusting income tax thresholds annually to reflect inflation, replacing the current eight-tier VAT structure with a simpler three-tier model, introducing a direct wealth tax and making electronic invoicing mandatory for all VAT-registered businesses.
The think tank also proposed introducing a tax justice impact assessment as a standard part of every national budget and called for legal safeguards to protect the newly established revenue policy division and revenue management division from political and administrative interference.
CPD also stated, "Such reforms would help build a fairer, more transparent and accountable tax system capable of supporting Bangladesh’s long-term economic development while reducing inequality.”
