One of the most frequently discussed mechanisms for increasing revenue for the National Board of Revenue (NBR), as well as improving the country's Tax-GDP ratio, is the expansion of the tax net. The persistently low Tax-GDP ratio clearly reflects a narrow tax base-one that, despite repeated commitments in successive budget announcements, has seen only marginal progress. As the next fiscal year's budget approaches, economists and policy experts are once again emphasising the urgency of widening the tax net. This issue has gained even greater importance given the country's Tax-GDP ratio wallowing at the lowest level in South Asia. At a time widely described as fiscally challenging, policymakers face the dual task of boosting revenue while cushioning the economy against both domestic vulnerabilities and global shocks.
For decades, the tax system has leaned heavily on a relatively small group of compliant taxpayers-primarily large corporations and individuals with substantial, documented incomes. This structural dependence has limited the scope of revenue expansion. Measures such as the introduction of the Tax Identification Number (TIN), along with its mandatory requirement for activities like opening bank accounts, registering property transactions, or obtaining automobile fitness certificates, were intended to formalise the system. While these steps were significant from an administrative standpoint, they fell short in one crucial area: ensuring that TIN holders actually file returns and pay taxes.
In practice, a TIN often serves merely as a proof of registration rather than a proof of compliance. Over time, this has created a large gap between registered taxpayers and active taxpayers. Many individuals and small business operators hold TINs but remain effectively outside of the tax net, either due to weak enforcement or a lack of follow-up. The scale of this gap is substantial. Reports suggest that tens of millions of middle-income earners-often estimated at around 40 million-do not contribute to income tax, even though many of them are likely eligible.
Bringing wealthy tax evaders into compliance is, of course, an essential responsibility of the authorities. However, experience shows that such targeted drives, while politically visible, often do not generate sustained or significant increases in revenue. High-profile enforcement campaigns may recover some unpaid taxes, but they are not a substitute for a broad-based and systematic expansion of the taxpayer base. Sustainable revenue growth depends on a balanced approach-combining enforcement against evasion with consistent efforts to include new, eligible taxpayers in the system.
In this regard, recent policy signals from the government appear encouraging. The commerce minister has emphasised a strategic shift: focusing on expanding the number of taxpayers rather than increasing tax rates. Speaking at a pre-budget consultation organised by the Dhaka Chamber of Commerce and Industry (DCCI), he underscored the importance of inclusivity in taxation. The assurance that the upcoming budget will avoid placing additional burdens on businesses reflects an awareness of current economic pressures, including inflation and rising operational costs. Instead, the government aims to strengthen revenue collection through broader participation, a move that could also enhance perceptions of fairness in the tax system.
The broader economic context further complicates fiscal planning. Global geopolitical tensions-particularly in energy-sensitive regions-have driven up commodity prices, placing additional strain on import-dependent economies. For Bangladesh, this translates into higher fuel costs, pressure on foreign exchange reserves and increased production expenses. These factors not only constrain fiscal flexibility but also heighten the urgency of domestic resource mobilisation. A stronger tax base would provide the government with greater resilience in navigating such external shocks.
At the same pre-budget meeting, the DCCI put forward several proposals aimed at making the tax system more efficient and growth-friendly. Among these were raising the tax-free income threshold to Tk 0.5 million and reducing the maximum tax rate to 25 per cent. The chamber also highlighted a critical structural issue: nearly 80 per cent of the economy remains informal. This vast informal sector represents a significant untapped source of revenue. Without integrating these economic activities into the formal system, efforts to raise the Tax-GDP ratio will remain constrained.
To address this, the DCCI recommended greater automation and simplification of tax procedures. Digital platforms, streamlined filing processes and reduced compliance costs could encourage more individuals and small businesses to enter the tax-net voluntarily. Additionally, proposals such as aligning corporate tax rates, phasing out advance taxes for manufacturers, and applying value-added tax (VAT) at the final stage aim to reduce distortions and improve overall efficiency. These measures, if carefully implemented, could simultaneously support business growth and enhance revenue collection.
Ultimately, there is no viable alternative to expanding the tax net if the goal is to achieve a meaningful and sustained increase in revenue. While the NBR has traditionally focused on identifying and penalising tax evaders, this approach alone is insufficient. A more forward-looking strategy would prioritise the inclusion of eligible but currently untaxed individuals and enterprises-particularly small and medium-sized businesses spread across the country. Even modest tax contributions from a large number of new taxpayers could collectively generate substantial additional revenue.
A key question, however, is whether the tax authorities possess the necessary data and analytical capacity to identify these potential taxpayers. Building a comprehensive and integrated database-linking financial transactions, property records and business activities-would be an important step in this direction.
Reforms aimed at broadening the tax net must therefore be both comprehensive and innovative. They should combine upgraded technology, policy simplification and strengthening of institutions. If executed effectively, such reforms can deliver not only short-term gains in revenue but also long-term improvements in fiscal sustainability and economic equity. The challenge lies not in recognising the importance of widening the tax-net-that consensus already exists-but in translating that recognition into consistent, effective actions.
wasiahmed.bd@gmail.com
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