Tax corruption key barrier to business growth: CPD survey

Corruption among tax officials has emerged as the single biggest barrier to business growth, according to a survey by local think tank Centre for Policy Dialogue (CPD).

More than 72 percent of firms, or three out of four, said bribery and harassment from taxmen were major obstacles to expansion. Another 82 percent said current tax rates were unfair.

The findings were presented at a dialogue on corporate tax and VAT reform at a hotel in Dhaka yesterday. In partnership with Christian Aid, the think tank surveyed 123 companies in Dhaka and Chattogram earlier this year.

Tamim Ahmed, senior research associate at CPD, presented the findings.

He said 65 percent of businesses were locked in disputes with officials over tax claims. Many of the executives interviewed complained that taxes were imposed arbitrarily, without explanation or notice. They argued such practices created an invisible cost greater than the tax itself, making the system deeply unfair.

On value-added tax (VAT), firms pointed to multiple rates and confusing rules.

Around 73.5 percent of respondents said the complexity of VAT laws was one of their biggest hurdles. Other concerns included limited cooperation from tax officers, inadequate training, difficulties classifying goods and services, and high compliance costs.

This part of the study, based on the World Bank Enterprise Survey model, covered 389 firms in Dhaka and the surrounding districts.

The CPD also estimated that tax evasion reached Tk 226,236 crore in 2023, due mainly to high rates, weak enforcement, complicated laws and widespread corruption.

The think tank criticised the National Board of Revenue (NBR) for retaining a minimum corporate income tax provision that forces firms to pay even when they make losses.

Currently, the rate is 0.6 percent of gross receipts for most companies, 2 percent for mobile operators and tobacco manufacturers, and 0.5 percent for export-oriented industries.

"While this minimum tax provision ensures that all firms contribute to public revenue regardless of profitability, it hampers the objective of tax justice," said Tamim Ahmed.

He noted that firms with low margins often end up paying more than highly profitable ones, and suggested a tiered system based on net profit.

Khondaker Golam Moazzem, research director at CPD, said, "From the perspective of tax justice, a fair revenue structure should ensure balanced development spending, minimise tax evasion, avoid reliance on indirect taxes, and be rooted in transparency and good governance. These are the main pillars of tax justice."

Bangladesh is scheduled to graduate from the least developed country (LDC) club in November next year, losing concessional loans, trade preferences and aid.

CPD said that domestic resource mobilisation will be critical to cope with the transition. It said Bangladesh needs to raise its tax-to-GDP ratio to at least 15 percent to build fiscal resilience.

"It is unrealistic for Bangladesh to raise its tax-to-GDP ratio in the short term. The government's long-term revenue targets must be implemented with care," said the think tank.

Instead of rising, the tax-to-GDP ratio has slipped to 6.6 percent this year from 7.4 percent last year, according to NBR Chairman Md Abdur Rahman Khan.

"Our revenue challenges are mounting. Debt servicing has become a serious burden, yet our tax-to-GDP ratio continues to fall," he said as the chief guest at the event.

Khan admitted that generous tax exemptions, often extended for years, had weakened revenue collection.

"Normally, a seven-year tax holiday is acceptable if industries start contributing from the eighth year since their inception. But in Bangladesh, exemptions are repeatedly extended, creating a culture of non-payment," said the revenue board chairman.

He also pointed to low public trust in the system.

"Taxpayers often ask, 'What do I get in return for paying tax?' While taxation is a civic duty, trust erodes if people see their money wasted on projects that bring no public benefit and serve only contractors or officials. Unless expenditure is prioritised for high-return, essential projects, tax morale will remain low."

The NBR chairman stressed the need to digitise VAT and audit systems, and said a single VAT rate would make compliance easier.

Khan admitted the minimum tax provision had drawn criticism. "Undoubtedly, it is a black law, and I must admit it," he said.

He said while firms should ideally be taxed on profit, the minimum tax sets a mandatory floor.

"We do not go below it. The problem is that resolving these cases immediately would further reduce our tax collection. Once we achieve reasonable discipline, we will be able to resolve all of these," commented the revenue board chairman.

He added that a change had been introduced this year to ease the burden. If a company paid more through the minimum tax than its regular liability, the excess could now be carried forward.

He said the revenue board had also sought to create a more business-friendly environment, particularly in VAT and income tax. "If we do not make it easier for businesses, compliance becomes extremely difficult," he commented.

At the event, former NBR chairman Muhammad Abdul Mazid suggested splitting the revenue department into two, which he said would solve a quarter of its problems.

He proposed that the policy wing remain outside the Secretariat and be located away from the NBR building.