Excessive reliance on indirect taxes pushing up inflation: Speakers

Indirect taxes account for nearly 80 per cent of total tax revenue in Bangladesh

FE REPORT | Published: May 18, 2026 22:49:37

Excessive dependence on indirect taxes is placing an additional financial burden on the public through inflationary pressure as well as discouraging investment growth, speakers at a discussion on Monday said.
Keeping this in view, they suggested bringing massive structural reform, digitisation of tax systems, reducing standard VAT rate, and imposing higher tax on luxury goods.
They made the observations at a discussion titled "Excessive Dependence on Indirect Taxes: Multifaceted Impacts on the Economy", organised by Voice for Reform at the BDBL Bhaban in the city's Karwan Bazar area.
Snehasish Barua, a partner of SMAC Advisory Services Ltd, presented a keynote paper, while Fahim Mashroor, Co-coordinator of Voice for Reform, moderated the discussion.
Among others, Chairman of Policy Exchange Bangladesh M Masrur Reaz, President of Economic Reporters Forum (ERF) and a Special Correspondent of the Financial Express Doulot Akter Mala, Former Member (VAT) of the National Board of Revenue (NBR) Mohammad Farid Uddin, Secretary General of Bangladesh Restaurant Owners Association Imran Hassan, and Founder President of VAT Forum Dr. Abdur Rouf spoke on the occasion.
Presenting the keynote paper, Snehasish Barua said the government's budget financing has become increasingly dependent on indirect taxes over the past several years, while direct tax collection remains weak.
He noted that indirect taxes account for nearly 80 per cent of total tax revenue in Bangladesh, compared to less than 50 per cent in neighbouring India, making Bangladesh one of the most indirect tax-dependent economies in Asia.
He argued that although advance income tax is theoretically considered a direct tax, in practice it functions more like an indirect tax.
He explained that imported goods and raw materials are often subject to VAT, customs duties and an additional 5.0 per cent advance tax simultaneously. In many cases, advance taxes are imposed at multiple stages, effectively creating double taxation, which ultimately raises product prices.
Former NBR member Mohammad Fariduddin said the VAT rate should not exceed 10 per cent under any circumstances.
Mr Masrur Reaz said Bangladesh's economy suffers from multiple structural imbalances, including the dominance of the informal economy over the formal sector, disparities in employment quality, and excessive dependence on a handful of sectors for production and exports.
He said the government should focus not only on increasing revenue collection but also on improving the quality of public expenditure.
Ms Doulot Akter Mala said the government is under severe revenue pressure, prompting an increasing reliance on source taxes such as advance tax, AIT and TDS to secure collections in advance from businesses and taxpayers.
She added that source tax systems are common globally, but Bangladesh lacks an effective refund mechanism,
On behalf of Voice for Reform, Mr Fahim Mashroor placed a set of reform proposals at the discussion. These included fixing the standard VAT rate at 7.5 per cent, imposing VAT rates above 25 per cent on luxury goods, and rationalising advance income tax for businesses to ensure it does not exceed applicable corporate tax liabilities.
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