THIS is welcome that the national task force formed to restructure the tax system has come up with some commendable and timely recommendations. The task force submitted its report, Tax Policy for Development: A Reform Agenda for Restructuring the Tax System, to the chief adviser on January 27. The report has provided the government with a sophisticated, 55-point road map designed to pull the country out of its persistent low-revenue trap. Bangladesh also has one of the lowest tax-to-GDP ratio, hovering around or below 8 per cent, among Asian countries. The most commendable aspect of the report is the urgent call to re-balance the ratio of direct and indirect taxes. The system now is lopsided, with 70 per cent of the revenue coming from indirect taxes. The task force’s recommendation to shift this to a 50:50 ratio is both ambitious and essential. For too long, the authorities have relied on the ‘easy’ collection of indirect taxes — value-added tax, and import and supplementary duties — to fill the exchequer. Indirect taxes are regressive. They are levied equally on a loaf of bread or a litre of fuel regardless of the consumer’s wealth, meaning the poor spend a significantly higher proportion of their income on tax than the wealthy.
Previous data have shown that the VAT burden on the poor can be double that of the rich relative to their income. With Gini coefficient hovering at 0.49, dangerously close to the ‘high inequality’ threshold of 0.50, the status quo is no longer tenable. By shifting the weight towards progressive direct taxes on income and profits, the government can and should finally begin to use fiscal policy as a tool for redistribution rather than a driver of disparity. Furthermore, the report rightly identifies that a narrow tax base and discretionary enforcement have stifled revenue growth. The road map to achieve 12 per cent by 2030 and up to 20 per cent by 2035 is realistic only if the proposed structural reforms, such as digitalisation, risk-based audits and the removal of the ‘anti-export bias’ in trade taxes, are effectively implemented. The task force’s advocacy for a single, standard VAT rate and the elimination of complex exemptions is equally vital. Complexity breeds corruption and evasion. By simplifying the code and broadening the tax net to reach the millions of eligible taxpayers who currently remain outside the system, the government can increase revenue without further squeezing the vulnerable.
Restructuring the tax system is not just an accounting exercise. It is a moral necessity for a nation striving for sustainable and inclusive development. The government should, therefore, begin implementation. The foundations for a modern, equitable tax regime should be laid now, ensuring that whoever assumes office after the February 12 elections inherits a balanced and progressive tax system.
