In a strategic shift, the government is preparing to raise the tax incidence on wealthy or 'high-net-worth individuals' (HNWIs) as part of its efforts to address widening income inequality. This proposed approach is outlined in the Medium- and Long-term Revenue Strategy (MLTRS) for FY2025-26 to FY2034-35, published by the National Board of Revenue (NBR). Reportedly developed by a core group of NBR officials, the strategy primarily seeks to enhance revenue mobilisation and improve the country's tax-to-GDP ratio, which remains low by regional standards. According to officials concerned, the proposed revision of tax rates for HNWIs is not intended solely to raise revenue. It is also aimed at improving the management of complex financial affairs of wealthy individuals, strengthening monitoring and enforcement mechanisms, ensuring better compliance, and promoting tax justice. In principle, these objectives are commendable, especially in a context where inequality has been growing and fiscal space is constrained.
However, the assumption that higher taxation of HNWIs alone will significantly narrow income inequality may be overly simplistic. Bangladesh Bank data indicate that there are around 23,000 HNWIs in the country, each with average bank deposits of about Tk 400 million. Furthermore, during the first half of FY2025, the number of bank accounts holding deposits exceeding Tk 10 million increased by 5,255, despite a sluggish business environment. At present, individuals earning more than Tk 3.8 million annually are taxed at a rate of 30 per cent. In addition, affluent taxpayers are subject to a wealth surcharge ranging from 10 to 35 per cent, if their accumulated wealth exceeds Tk 40 million. These figures must not constitute a strong enough ground for levying higher taxes believing such action will narrow the widening inequality. Therefore, the argument that further increase in tax rates on this group will meaningfully reduce inequality is not particularly compelling. Moreover, it must be kept in mind that HNWIs play a crucial role in driving industrial activity, investment, and job creation. Abrupt or poorly calibrated tax hikes risk discouraging investment and undermining economic growth, which could ultimately harm employment and income prospects for broader segments of the population.
Tax experts have thus cautioned against a narrow focus on raising rates. Instead, they suggest that the authorities reassess the effectiveness of current high-rate tax brackets and explore alternatives to the existing wealth surcharge. More importantly, priority should be given to ensuring compliance and curbing tax evasion, which continues to erode the revenue base. Any increase in tax rates, if deemed necessary, should be well justified, carefully designed, and supported by robust administrative capacity.
For years, experts have been consistently emphasising the need to broaden the tax net across all income levels as the most sustainable way to mobilise revenue. Unfortunately, progress on this front has been limited. Without meaningful expansion of the tax base and improvement in enforcement, relying primarily on higher taxation of the wealthy may fall short of both revenue and equity objectives.
