Bangladesh lost a staggering Tk 226,236 crore in revenue in 2023 due to tax evasion, according to a recent research report by the Centre for Policy Dialogue (CPD).
Approximately 50 per cent of this loss – equivalent to Tk 1,13,118 crore – was attributed to corporate tax evasion.
The report highlights that tax evasion has been on the rise since 2011, with figures escalating from Tk 96,503 crore in 2012 to Tk 1,33,673 crore in 2015.
The findings were presented by Tamim Ahmed, Senior Research Associate at CPD, during a media briefing on ‘Corporate Income Tax Reform for Graduating Bangladesh: The Justice Perspective’ at the CPD’s office in Dhaka on Monday.
Corporate tax evasion: A growing concern
Tamim Ahmed noted that, similar to global trends, corporate tax contributions in Bangladesh are declining. Many sectors, including garments and ICT, benefit from tax exemptions, further complicating revenue collection.
Of the 2,88,000 registered companies in the country, only 9 per cent (or 24,381 companies) submitted tax returns in 2023. This glaring disparity places an undue burden on compliant taxpayers, increasing their share of the tax load.
Revenue implications for the government
CPD Research Director Khondaker Golam Moazzem emphasised the long-term consequences of such massive tax evasion. "If the government fails to secure higher revenue in the future, it will face significant challenges in providing subsidies, diversifying exports, and creating skilled manpower," he warned.
He explained that the government's primary sources of revenue include direct taxes, indirect taxes, and non-tax income, with the corporate sector contributing about 20 per cent of total revenue.
Additionally, VAT accounts for 40 per cent, making these two sources responsible for nearly 60 per cent of annual revenue.
Moazzem stressed the urgent need for reforms in corporate tax and VAT systems. "Every year, pressure groups lobby the government to reduce tax rates, leading to deviations from revenue targets. This creates a hollow framework that undermines fiscal stability. A clear strategy must be formulated to increase the tax-to-GDP ratio," he said.
Challenges in the tax system
The research underscores several systemic challenges contributing to Bangladesh’s persistent tax evasion problem:
- High tax rates discouraging compliance.
- Weak enforcement mechanisms failing to hold evaders accountable.
- A complex legal framework that confuses taxpayers and creates loopholes.
- Widespread corruption within the tax administration.
From a tax justice perspective, the CPD report warns that high levels of tax evasion discourage honest taxpayers and disproportionately increase the burden on law-abiding citizens and businesses.
The role of digitalisation
Highlighting the importance of technology, Moazzem called for greater digitalisation in tax processes. "Digitalisation is crucial for both the National Board of Revenue (NBR) and businesses. However, there is reluctance on both sides. All transactions in Bangladesh must be integrated into a single digital system to ensure traceability and verification of filed returns," he added.
International perspective
Christian Aid Country Director Nuzhat Jabin pointed out that most low-income countries rely heavily on direct taxes, a model that needs revision as Bangladesh transitions from Least Developed Country (LDC) status. "As we graduate from LDC status, we must reduce our dependence on direct taxes and explore alternative revenue streams," she said.
Potential for revenue recovery
The CPD report estimates that if even a fraction of the TK 2,30,000 crore lost to tax evasion in 2023 could be recovered, it would significantly boost national revenue.
Moazzem remarked, "The hostile environment in which the NBR operates exacerbates the problem. Beyond tax evasion, many sectors and institutions remain outside the tax net altogether."
Call for comprehensive reforms
The CPD has urged policymakers to address structural flaws in the tax system through comprehensive reforms. By simplifying tax laws, strengthening enforcement, combating corruption, and leveraging digital tools, Bangladesh can curb tax evasion and build a fairer, more sustainable revenue model.