Fixing the tax system in Bangladesh: what BNP inherits and what it can do

Tax-to-GDP ratio in Bangladesh remains low and is recognised as a chronic problem-- one of insufficient taxation that is unevenly imposed. Low tax revenue depresses public investment in services that are critical to driving long-term growth. 

Bangladesh needs a larger economy, and the government needs more taxes that it can spend productively. The National Board of Revenue (NBR) reform sits at the heart of this challenge.

A year on from the ordinance that was supposed to fix the NBR, the reform itself has stalled. Over the last year, the political ground in Bangladesh has shifted significantly. The country has an elected government that enjoys a two-thirds majority in Parliament. The economy remains fragile. Prime Minister Tarique Rahman and Finance Minister Amir Khosru Mahmud Chowdhury are at the moment building the next annual budget. In the run-up to the budget, several economic policy reforms have been announced.

WHERE THE REFORM STANDS

The interim government-era ordinance of May 12, 2025, split the NBR into two, creating two new divisions, the Revenue Policy Division and the Revenue Management Division. In response, NBR officials struck for nearly six weeks. A revised ordinance in September 2025 proposed that revenue cadres could apply for senior posts and was able to temporarily de-escalate the protest. 

But by then, the reform had already stalled. The NBR chairman admitted as much when he had said that the proposed reforms had run into difficulties and the new government would have to deliberate further to make the reform “practical”. 

The events around the NBR reform send important signals to the market, as well as to the constituency of international financial institutions that continue to monitor the Bangladeshi economy and support it. But it is hardly the only important reform that Bangladesh needs for its tax system.

A NEW GOVERNMENT-- WHAT IT SAID AND WHAT IT CAN DO

The BNP’s election manifesto indicated an ambition to raise the tax-to-GDP ratio to 15 percent by 2035, and to mobilise additional revenue without imposing new taxes. The means listed were largely sensible-- expansion of the tax base for both income tax and VAT, higher taxes on carbon, better use of technology to make tax collection more efficient, and the like.

The political economy isn’t hard to decipher-- the business community that supports any government is not going to be in favour of higher taxes, or even a fairer and no-exemption basis for tax collection. This matters in the context of Bangladesh, where the economy depends heavily on the success of export-oriented enterprises in sectors such as garments and pharmaceuticals, and where exemptions and negotiated compliance have been the norm. 

An elected government is bound -- rightly so -- by constraints that did not apply to the unelected interim government. But the July Charter that passed with over 60 percent in the referendum gives BNP the mandate to push for some fundamental but difficult reforms. The IMF programme that continues to be critical for Bangladesh provides further impetus. The current economic stress and the upcoming LDC graduation both point in the same direction.

THE WAY FORWARD

Tax reform in Bangladesh has to start with a diagnosis that is validated with a wide stakeholder group, including the revenue cadres whose cooperation will determine implementation. 

It has to be sequenced with early visible wins to build public trust, which in practice means closing a few well-publicised evasion cases at the top end before asking small traders to file more paperwork. Within the NBR, there is no substitute for careful and patient change management interventions.

The upcoming budget for FY2026-27 will be instructive.

First, does the government revisit the NBR split in a cleaner form? 

The cleanest path would be a fresh law passed by the new parliament rather than an ordinance, drafted in consultation with both revenue cadres and the administration cadre. 

Unlike the 2025 ordinance, this would address concerns and confusion around reporting lines and also reduce conflict between cadres. That will, in turn, resolve the pending disputes in court and signal a formal step towards durable reforms in the NBR.

Second, will the government take forward the wealth and inheritance tax proposals that have been raised in pre-budget discussions? 

The NBR has indicated it is considering both the reintroduction of a wealth tax and a new inheritance tax, alongside higher taxation on top earners and tighter exemptions. These proposals will directly test the government’s willingness to impose costs on a politically powerful constituency-- and to tax accumulated domestic wealth, not just income. Of course, these taxes cannot be implemented without fixing the underlying administrative weaknesses within the NBR. 

Third, at the other end of the spectrum, will the government do anything to bring the urban informal economy into the tax net, but without depressing economic activity? 

Asking small traders to comply with cumbersome requirements and unleashing tax collectors upon vendors will not yield much, and moreover, it is a risk to political capital that is simply not worth taking.

REBUILDING THE SOCIAL CONTRACT

The underlying problem is one of building an economy that earns the government enough revenue to deliver reliable urban services, functioning public hospitals, and basic infrastructure for Bangladeshi citizens. Bangladesh, much like its neighbour India, has a K-shaped economy with inequality in wealth and consumption steadily increasing. At the moment, the government cannot fund the services that would satisfy the demands that emerged from the 2024 monsoon protests. 

The BNP government has a real challenge on its hands-- the NBR reforms are currently stuck. The upcoming budget won’t fix every structural problem, but it is certainly an opportunity to show a strong intent for reform. Failure to act will mean continued revenue stagnation even as IMF conditions tighten and LDC graduation squeezes the country’s major export sectors. The government must not let this moment pass by.

The writer is with Adam Smith International and is a governance and public policy professional with over two decades of experience across South Asia and East Africa.