Designing tax reform that works

Tax policy in Bangladesh has long been driven by what is easiest to collect rather than what is fair or efficient. High trade taxes and transaction-based levies have filled revenue gaps left by weak income assessment and limited information. This has created a system where compliance is often more a matter of circumstance than choice, and where distortions encourage tax evasion and the expansion of the informal economy. The National Taskforce for Tax Reform has now proposed moving away from this convenience-driven approach, advocating for simplified rates, updated asset valuations and integrated digital databases to track income and property. With the stated goal of lifting the tax-to-GDP ratio significantly by 2035, the taskforce has highlighted critical weaknesses including a narrow tax base, reliance on manual administration and valuation problems that encourage avoidance. Many of its proposals, particularly those aimed at simplification and broadening the base, are grounded in sound economic logic and global best practice. Nevertheless, giving effect to these proposals would demand a level of administrative competence and institutional coordination that previous efforts have failed to achieve.
Property taxation is a good place to see both the promise and the pitfalls of the taskforce approach. High transaction taxes on property have long encouraged buyers and sellers to understate values in deeds, resulting in significant revenue loss. Lowering these taxes makes intuitive sense, as reasonable taxes reduce the temptation to cheat and could curb evasion. But this reform cannot stand alone. Official prices of land and flats remain outdated and crude, often bearing little resemblance to actual market prices. Even within the same mouza, land values can vary sharply depending on location, road access and development potential. This very disparity is why updating these valuations is essential, but the process must be conducted with careful transparency and regular revisions. Without such diligence, honest taxpayers may face unfair burdens while sophisticated evaders find new ways to exploit the inconsistencies.
Perhaps the most forward-looking recommendation is the creation of a digitally integrated database linking land registration, city corporation records and tax information. In principle, this could change the culture of tax compliance altogether. Cross-referencing data from electricity bills, land registries and city taxes could finally bring many hidden parts of the economy into the light. The existing use of vehicle registration data by tax officials already shows how information sharing can nudge collections upward. Extending this model across public agencies could improve the assessment of rental income, professional earnings and wealth transfers that currently escape scrutiny. Still, digital integration is not a magic wand. Without clear protocols and accountability, mismatched or outdated records could lead to harassment of compliant taxpayers and erode trust. Accordingly, building analytical capacity within tax offices would be just as important as building databases.
The more contentious proposals, including inheritance tax and lower trade taxes, also demand a balanced reading. An inheritance tax addresses a genuine gap in the existing system, as large transfers of accumulated wealth currently pass untaxed and with little scrutiny. A well-designed inheritance tax could enhance fairness and modestly expand the tax base, particularly if paired with sensible exemptions and thresholds. Similarly, the plan to reduce trade tax aligns Bangladesh with regional norms and could improve export competitiveness. But the current reliance on high trade taxes exists for a reason. Tax authorities often struggle to assess actual income and sales within the domestic economy, making source-based trade taxes a simpler, more reliable revenue stream. Reducing these rates without a parallel and decisive strengthening of income assessment and evasion detection risks creating serious revenue shortfalls, potentially doing more harm than good.