B Mirror Report: The Centre for Policy Dialogue (CPD) has called for a fundamental restructuring of Bangladesh’s tax system, urging a shift from a revenue-driven approach to a broader “tax justice” framework as the country prepares for its 2026–27 budget and graduation from Least Developed Country (LDC) status.

Bangladesh’s tax-to-GDP ratio currently stands at just 7.3%, the lowest in South Asia, according to the civil society think tank.

CPD, in collaboration with Christian Aid (CA), recently published a report titled “Tax Justice for Graduating Bangladesh: The Case of Corporate Income Tax and Value Added Tax.” The report argues that Bangladesh must move away from a narrow focus on revenue collection towards a comprehensive tax justice model that prioritises equitable financing, reduced regressivity, elimination of revenue leakage, and stronger accountability in governance.

The report estimates that Bangladesh lost Tk 226,236 crore in potential tax revenue in FY2022–23 due to tax evasion alone. It also highlights that actual VAT collection accounts for only 28%–29% of total VAT potential, citing widespread evasion and excessive exemptions.

The government has set targets to raise the tax-to-GDP ratio to 10% in the medium term and 15% by 2035. However, CPD warned that pursuing revenue targets without structural reforms could deepen inequality and undermine social progress.

On corporate taxation, CPD recommended gradually aligning Bangladesh’s corporate income tax (CIT) rate with the OECD/G20 global minimum tax threshold of 15%. It also noted that the effective tax rate faced by firms is significantly higher than statutory rates in some cases, reaching 60%–70% due to compliance costs, disallowed deductions, and administrative inconsistencies. The current effective CIT rate stands at around 31% for listed companies and 33.5% for non-listed firms, which CPD said should be reduced to more competitive levels.

The think tank further proposed replacing flat tax reductions for listed companies with performance-based incentives linked to investment, exports, and job creation.

Regarding VAT, CPD described it as inherently regressive and recommended simplifying the current eight-tier system into a three-tier structure standard, reduced, and zero-rated with a long-term transition to a two-tier model. It also suggested reducing the standard VAT rate from 15% to 10%, provided tax base expansion and enforcement improvements are implemented.

CPD additionally recommended ring-fencing portions of VAT revenue for targeted social protection programmes, especially for low-income groups. It also called for reinvesting VAT collected from sectors such as private healthcare and education into improving access for disadvantaged communities.

The report urged the government to withdraw tax incentives for fossil fuel-based power producers and introduce sunset clauses for all tax exemptions, ensuring industries eventually transition to standard taxation rates. Export cash incentives should also be gradually phased out in preparation for LDC graduation and replaced with WTO-compliant mechanisms such as duty drawbacks and investment credits.

On tax administration, CPD called for the use of data analytics and artificial intelligence, along with secure data-sharing between the National Board of Revenue (NBR), Bangladesh Bank, and financial institutions. It also recommended mandatory use of Electronic Fiscal Devices (EFDs) nationwide and alignment with the OECD’s Base Erosion and Profit Shifting (BEPS) framework to combat cross-border tax evasion.

Institutional reforms were also proposed, including separating tax policy from tax collection within the NBR and establishing an independent agency to manage tax refunds.

CPD further suggested removing advance tax burdens on small and medium enterprises, introducing tax literacy education in academic institutions, and making repeated non-filing of tax returns a criminal offence.

The report estimated that the active taxpayer base should be expanded to cover at least 59% of registered companies, alongside measures to clean up corporate registries, disclose compliance data publicly, and bring emerging sectors such as the gig economy and NGOs into the tax net.

The report, jointly authored by CPD researchers including Khondaker Golam Moazzem, Tamim Ahmed, Maleehah Sabah Ali, Sami Mohammad, and Mohammad Iftekharul Islam, framed its recommendations as essential reforms for a fairer and more resilient tax system ahead of Bangladesh’s transition from LDC status.