Collecting additional taxes from the rich recommended
The Task Force on Economic Strategy Redesign has recommended imposing additional taxes on the wealthy to reduce income and wealth inequality. It has urged the introduction of a progressive tax system as a priority, ensuring that the rich contribute a higher share of taxes.
The interim government formed the task force on 11 September to revamp economic strategies and mobilise resources for sustainable and equitable development. On Thursday, the task force submitted its report to Chief Adviser Professor Muhammad Yunus.
According to the report, a wealth tax should be levied on both personal and inherited assets to prevent the concentration of wealth in the hands of a few. It emphasised strengthening the capacity to collect taxes from high-income individuals and curbing tax evasion.
The task force’s recommendations come at a time when income inequality in Bangladesh has reached alarming levels. The report highlights that while GDP growth has benefited the wealthy disproportionately, low-income groups continue to struggle to improve their quality of life.
To address these disparities, the report suggests various measures, including a progressive tax system. When asked about the proposal, KAS Murshid, head of the task force and former Director General of the Bangladesh Institute of Development Studies (BIDS), stated that while discussions on progressive taxation have been ongoing for years, little progress has been made. He stressed the need to prioritise its implementation to reduce inequality, although he acknowledged that it cannot be introduced overnight.
Murshid further noted that tax compliance remains a challenge, as many people resist coming under the tax net. Consequently, the government relies on easily collectible taxes, such as Value Added Tax (VAT), which affects both the rich and the poor equally. This, he said, makes it difficult to establish a fair and non-discriminatory tax system.
Inequality: Then vs Now
In 1971, Bangladesh’s Liberation War was fought against inequality. However, over the years, income and wealth inequality has steadily worsened. The inequality of opportunity has also increased, fueling public discontent. The mass uprising in July 2024 was sparked by protests against quota-based discrimination in government jobs.
Income inequality is typically measured using the Gini coefficient, a method developed by Italian statistician Corrado Gini in 1912. Under this system, a Gini coefficient of 0 indicates perfect equality, where everyone earns the same income, while a Gini coefficient of 1 signifies extreme inequality, where all income is concentrated in one person’s hands.
In 1973-74, Bangladesh’s Gini coefficient was 0.358. By 2022, it had risen to 0.499—approaching the danger threshold of 0.500, beyond which inequality is considered critically high.
The Bangladesh Bureau of Statistics (BBS) Household Income and Expenditure Survey 2022 revealed that the richest 10 per cent of the population controls 41 per cent of the country’s total income, while the poorest 10 per cent receives only 1.31 per cent of total income. In contrast, in 1973-74, inequality was significantly lower. The wealthiest 10 per cent held 28.4 per cent of total income, while the poorest 10 per cent held 2.8 per cent of total income—more than double their current share.
Over the last 15 years, under the Awami League government—which was ousted in the July 2024 coup—inequality surged to dangerous levels. The former government repeatedly argued that inequality tends to rise in the early stages of economic development. However, it overlooked examples like Japan and South Korea, which successfully developed while keeping inequality in check.
Due to the lack of effective policies to curb inequality, Bangladesh’s ranking in Oxfam’s Commitment to Reducing Inequality (CRI) Index dropped sharply. In 2022, the country was ranked 107th out of 164 countries. By 2024, its ranking had fallen to 124th, indicating a worsening situation.
Major reasons for increasing income and wealth inequality
The task force report highlighted that Bangladesh’s economy is shifting from agriculture to industry and services, leading to a concentration of wealth in urban areas while rural communities remain underdeveloped.
Despite the employment opportunities created by the garment sector, the wage gap between skilled and unskilled workers remains substantial. Furthermore, limited access to quality education exacerbates income inequality, as those who receive better education earn significantly more.
The report identified several factors contributing to rising income inequality, including the government’s reliance on indirect taxes such as value-added tax (VAT), import duties, supplementary duties, excise duties, and regulatory duties, coupled with inadequate social safety programs. It noted that VAT on essential goods like oil, soap, and shampoo disproportionately affects the poor, as both rich and poor consumers pay the same rate, placing a heavier financial burden on low-income groups.
Bangladesh also lags behind in direct tax collection. According to sources from the National Board of Revenue (NBR), the country has approximately 11 million tax identification number (TIN) holders. However, only about 4 million taxpayers file annual tax returns, meaning just 2 per cent of the population consistently contributes to income tax.
The country does have a system for levying surcharges on wealth. Individuals with a net wealth exceeding 40 million taka are required to pay an additional 10 per cent income tax. However, actual tax collection remains low due to tax evasion and underreporting of asset values. Wealthy individuals often declare outdated purchase prices for land and properties, significantly reducing their tax liabilities. According to the NBR’s Large Taxpayer Unit, only 182 of the 700 wealthiest individuals under its jurisdiction currently pay wealth tax.
More inequality
The task force on economic strategy redesign did not limit its concerns to income inequality but also addressed structural inequalities in society. It emphasised that disparities in housing, health, education, and employment have worsened due to unfair regulations.
Furthermore, the task force noted that inequality among different social classes is deepening due to imbalances in social, economic, and political structures.
To reduce both income and wealth inequality, the task force proposed several key recommendations. In addition to advocating for a progressive tax system and wealth redistribution, other suggestions included improving the quality of education and skill development, expanding financial inclusion, strengthening social safety programs, reforming the labor market, prioritising regional development, ensuring good governance, eliminating gender inequality, promoting technology and innovation, and increasing public awareness.
When asked about the issue, economist and member of the Democratic Rights Committee, Professor Anu Muhammad, told Prothom Alo that the wealthy in Bangladesh often pay less tax, while those with lower incomes bear a heavier tax burden. He stated that this imbalance is fueling inequality.
He further noted that while there is ample opportunity to collect additional taxes from the rich, the interim government does not appear to be prioritizing this approach. Instead, it has increased VAT and supplementary duties to meet the conditions set by the International Monetary Fund (IMF).