Tax collection falls behind economic expansion

Bangladesh’s revenue collection has grown more slowly than the economy over the past decade, indicating substantial untapped revenue potential, according to a recent analysis by the Finance Division.

The analysis showed that the country’s average revenue buoyancy -- a measure of how quickly government revenue grows relative to the economy -- stood at 0.93 between fiscal years 2014-15 and 2024-25.

A revenue buoyancy coefficient above 1 indicates that tax collection is outpacing economic growth, reflecting a highly efficient revenue system. Conversely, a coefficient below 1 suggests revenue growth is trailing economic expansion, often because of structural inefficiencies or a narrow tax base.

In its latest Medium-term Macroeconomic Policy Statement (MTMPS) for FY2026-27 to FY2028-29, published last week, the Finance Division said revenue buoyancy had been highly volatile, peaking at 2.10 in FY21 before plunging to 0.15 in FY22. The coefficient fell again to 0.60 in FY25.

“On average it stood at 0.93, indicating revenue growth has structurally lagged behind nominal GDP expansion,” the MTMPS said.

Nominal GDP grew by an average of 11.71 percent annually between FY21 and FY25. Over the same period, actual tax revenue expanded by an average of 11.4 percent

According to the Bangladesh Bureau of Statistics, nominal GDP grew by an average of 11.71 percent annually between FY21 and FY25. Over the same period, actual tax revenue expanded by an average of 11.4 percent, the Finance Division said.

“This persistent trend indicates that revenue collection is not keeping pace with economic growth, revealing the existence of substantial untapped revenue potential,” the Finance Division said.

The division suggested a strategic shift towards digital integration and administrative reforms to align revenue mobilisation more closely with the nation’s trajectory towards a trillion-dollar economy.

The MTMPS also compared Bangladesh’s performance with neighbouring and peer countries in South and Southeast Asia, highlighting the country’s relatively weak revenue mobilisation.

While comparable emerging economies have expanded fiscal buffers alongside economic growth, Bangladesh continues to operate with a narrow revenue base and low collection efficiency, the report said.

The gap became more pronounced in 2025. Bhutan recorded a revenue-to-GDP ratio of 27.8 percent, followed by India at 21 percent, Myanmar at 20.3 percent, Nepal at 20 percent and Vietnam at 19.9 percent.

Bangladesh’s ratio stood at just 7.9 percent that year.

“This persistently low taxation level indicates that structural reform in taxation policy and administration is required so that taxes can be more efficiently collected from potential revenue sources.”

The MTMPS said a large traditional agricultural sector and an extensive informal economy outside the formal tax net continue to pose major challenges to effective tax administration.

“Also, the absence of tax administration-wide digitalisation and low tax morale make it very difficult for the tax administration to perform effectively.”

The report noted that revenue-to-GDP ratios in Pakistan, Cambodia and Sri Lanka also exceed Bangladesh’s, underscoring the scope for greater revenue mobilisation and the need to tap underutilised fiscal resources.

The MTMPS highlighted “a significant and persistent gap” between the number of Taxpayer Identification Number (TIN) holders and actual income tax return filings.

Although the number of registered TIN holders rose to 1.2 crore in FY25, compliance remained weak. Only 46 lakh returns were filed, meaning nearly 62 percent of TIN holders failed to submit returns, resulting in a record compliance gap of 74 lakh taxpayers.

However, a positive shift is emerging in FY26, as mandatory online filing has driven a 24.3 percent increase in submissions as of March. The trend suggests that while systemic inertia persists, digital enforcement is becoming a key driver of improved compliance and a more disciplined tax culture.

The National Board of Revenue currently generates 88 percent of total tax revenue. Indirect taxes -- including VAT, supplementary duty, customs duty and other levies -- account for 65.6 percent of the NBR’s collections.

Direct taxes, led primarily by income tax, contribute the remaining 34.4 percent, underscoring the tax system’s continued reliance on consumption-based indirect taxation.