Legal Dimensions of Taxation and Public Revenue in Bangladesh: Challenges, Gaps, and Reform Opportunities

Abstract

Three Institutions and Governance: Legal frameworks, institutional structures and governance practices in Bangladesh play a significant role in influencing taxation and public revenue performance by generating inefficiencies, constraining the tax base, and impeding compliance. all these points lead to a low tax-to-GDP ratio of approximately 7.7-9%, when regional averages are considered, which is noted on systemic grounds such as leakage, corruption, and old procedures. Comprehensive legal-administrative reform is necessary for tax broadening, equity improvement and sustainable revenue mobilization. The tax laws in Bangladesh, as amended to date including the Income Tax Act 2023 which replaced the 1984 Ordinance, modernize collection process and features GAAR and alignment with IFRS, yet have a plethora of rates, exemptions and cumbersome compliance. VATs have narrow trapped bases and distorted cascading effect and lower productivity; income taxes suffer from narrow bases and high evasion. Reforms such as e-filing and automation aim to ease compliance, but loopholes perpetuate regressive taxes. Institutional Structures: The National Board of Revenue (NBR), an institution born in 1972 under the Ministry of Finance and responsible for 97% of total tax collected via its 45 directorates is struggling with a restructuring process due to a proposal by 2025 to divide into two entities, namely, Revenue Policy and Management Divisions which has invited protests due to allegations relating to politicisation. There is a lack of coordination between the organisations, which results in capacity constraints imposed by resource limitation and manual procedures which NBR can only collect 85% of total government revenue corresponding to central budget. New Age digitization initiatives such as e-TDS and taxpayer fairs promise much but are yet to be fully operationalized. Governance Practices : Corruption, inefficiencies and low enforcement further weaken revenue as governance issues take their toll discouraging taxpayers while allowing evasion in the informal segment. Policies like tax holidays skew incentives toward real estate instead of productive investments, while low administrative capacity and court backlogs slow the process of resolving problems. Efforts like ADR and taxpayer awareness seek to promote compliance, however politicization threats and weak data connection remain. Reform Needs: Comprehensive reforms that capture legal multiplicity, institutional autonomy and governance transparency are needed to move tax-to-GDP ratio closer to 13%. Critical requirements include consistent VAT rates, computerization, anti-corruption steps and the formalization of the informal sector for fair implementation. The need for these changes is also reflected in the World Bank’s emphasis on public financial management.