What is the economic path to avoid future 'Red July'?

The size of Bangladesh's economy is gradually increasing. The size of the budget is growing. In 54 years, there has been substantial infrastructural development; however, income inequality and wealth disparity are rampant in the society here. This disparity is the main enemy of social peace; although a cultural war is being waged to divert people's attention.

In the ''Global Inequality Report'' of the Paris School of Economics on 10 December 2025, it was written about Bangladesh that the top 10 per cent wealthy in the society own 58 per cent of the total wealth here. The top 1 per cent holds about 25 per cent of the total wealth. The bottom 50 per cent of people have only 4.7 per cent of the national wealth. There is also intense inequality in income. 41 per cent of the national income goes to the top 10 per cent of earners. The bottom 50 per cent of people collectively earn only 19 per cent.

Groups in advantageous positions in the economy naturally control politics. They can influence the administration more. Among the candidates in the upcoming national election, there is a predominance of millionaires. In one major party, 75 per cent of candidates are millionaires. The wealthy politicians, upon gaining power, will want to preserve an economic system advantageous for them. As a result, even in a ''fair election,'' the dire picture of economic disparity might change only slightly, and Bangladesh will have to remain at risk of another potential ''Red July'' in the future.

A section of civil society occasionally raises such questions: how can inequality be reduced, and where will the domestic resources come from to ensure sufficient development for the benefit of all? Along with disparity, the scarcity of resources is indeed interconnected issues. However, it is possible to increase resources, and to reduce disparity, merely the supply of resources is not enough; we have to rethink ways to reduce disparity.

Bangladesh's per capita income is $2,820. In terms of money, it is around Tk 350,000. This income is calculated by dividing the national income by the population. Although policymakers are praised for showing large figures of per capita income, this does not reflect the true picture of the income of the lower tiers of society. It is also known from many contemporary studies that at least 20 per cent of people in the country are poor. In other words, at least 30 to 40 million people are still below the poverty line, who cannot even spend Tk 3,822 monthly to fulfill their food and other basic needs, according to researchers' standards.

On one hand, there are many poor people, and on the other, the bloated picture of average income makes it clear that besides the massive inequality of income and wealth, a group of people are earning significantly. A huge amount of wealth is accumulating in their hands. However, the country prepares development budgets every year with very little domestic resources because the state's income is low. On one side is social inequality in wealth, and on the other, a tiny group with massive wealth creates a terrible imbalance in Bangladesh.

According to the ''Taxing Extreme Wealth'' report published by Oxfam International and its three affiliated international organisations in January 2022, about 3,550 people in Bangladesh possess a net wealth of $5 million or more. Among them, at least 195 people have wealth of $50 million or more. The combined wealth of these 195 people is equivalent to about $28 billion, which is 2.6 times more than the wealth of 50 million lower-tier Bangladeshis. According to simple calculations, if a new wealth tax of 5 per cent is imposed on such wealthy individuals, it would be possible to collect $1.4 billion in tax from just these 195 individuals. In terms of money, this is roughly Tk 168 billion.

A major source of domestic resource collection is government tax collection. If tax collection can be increased by reforming the tax system, and if it is used in work that develops the disadvantaged, only then it is possible to reduce disparity. This means increasing revenue collection through tax system reform on one side; on the other, the lives of those subjected to wealth disparity need to be made location-centric. Such areas could include border areas, labour colonies, Dalit communities, Char areas, specific sections of women's society, indigenous areas, etc.

A detailed investigation, census, and information bank are needed to know where wealth is concentrated in society and where poverty is more prevalent. This is the initial work. However, even before such a new census, it is not difficult to identify poor areas and communities. Poverty research already conducted by various organisations can be utilized in this case.

Income inequality is a social disease. It increases unrest, discontent, instability, and criminal tendencies. The consumption, education, training expenditure, and investment of disparity-affected people are low. In their lives, a cycle of low income, poor nutrition, and an uncertain future develops. This cycle reproduces itself continuously. When economic deprivation keeps a large population backward in health and education, it effectively holds back the country. Then a major portion of the human resources becomes a national burden. The people affected by disparity cannot easily enter into administration, politics, and the process of justice.

If we accept disparity as the main problem and consider balanced distribution of wealth and income as the actionable task, then the responsibility falls on the reform of the economic system. Many kinds of measures can be taken to increase internal resources for reducing disparity and balanced economic development of society. Examples include reorganising and expanding the wealth tax system, halting the tax-free car import benefits of various persons including Members of Parliament, expanding the scope of individual taxpayers, reorganising tax rates, increasing taxes on non-listed companies in the stock market, zero tolerance on money laundering, keeping the door closed on whitening black money, enacting a national minimum wage law, increasing workers' share in industrial profits, reducing cash transactions and moving toward digital payments, expanding the tax net to the informal side of the economy, stopping surcharge evasion, etc.

If the tax collection system can be made corruption-free and strict monitoring can be implemented, the collection of domestic resources will increase significantly. CPD, a research organisation, reported after a study on 123 companies that they estimated a loss of approximately Tk 2262.36 billion in tax evasion during the 2022-23 fiscal year. In this, corporate tax evasion constitutes half. According to 45 per cent of the companies providing information, they were asked for bribes in the tax payment process.

The CPD’s research estimates that the amount of tax evasion expected for 2023 is nearly two-thirds of the revenue collected in 2024 (Tk 3708.74 billion)! This means that stopping corruption and tax evasion can effectively double the domestic resource collection within the current system. Alongside, effective ways must be sought to transfer that domestic resource to the disadvantaged population. This could include educational support, training support, investment in housing facilities for the underprivileged, ensuring their healthcare, providing pension support to everyone after a specific age, etc.

Data published in national dailies show that the revised revenue target for the 2024-25 fiscal year was Tk 4635 billion. The following year, the target was set at Tk 5,880 billion. This revenue target was about 9 per cent of GDP. However, achieving such targets has problems in Bangladesh. Jean Pesme, the director of the World Bank's Bangladesh Division, mentioned in a writing last December, that in the 2024-25 fiscal year, the actual tax-GDP ratio here was 6.7 per cent. This needs to be doubled. In India, it was 11.7 per cent in the 2024-25 fiscal year. In Pakistan, it was 15.70 per cent.

A high tax-GDP ratio in any country proves there is sufficient funding coming in to meet the development needs of the country. A low ratio indicates that the government is weak in tax collection, resulting in limited implementation of development programmes. Bangladesh has to overcome this situation. This doesn't mean we will do it because the World Bank wants it. Bangladesh must do it in its interest, according to its plan.

Rationalisation of Tax Rates and VAT Dependence in the Tax System
In Bangladesh, tax comes mainly through two channels: direct tax and indirect tax. Income up to Tk 350,000 per year is tax-exempt. Following this, tax is imposed in five steps, according to income, from 5 per cent to 25 per cent. At the final stage, individuals earning more than Tk 3.6 million must pay 30 per cent tax on their remaining income. There needs reconsideration of this income tax structure.

Why should individuals whose additional income is up to Tk 4 million and those whose income is up to Tk 10 million have the same tax rate at the end of the final stage of this rule? Whether there is room for gradually increasing tax rates for high wealth holders can be actively considered. Central bank information reveals the rapid increase in the number of wealthy individuals. As of December 2025, there are accounts with 128000 people containing Tk 10 million or more deposited in banks. This is the ''tip of the iceberg'' of the entire wealth picture.

Since the number of income taxpayers is low, the whole matter of internal resource collection largely relies on VAT here. The VAT or value-added tax system was introduced in 1991. The report of December 2025 states that collection through VAT has increased 22 times. In the 2000-01 fiscal year, VAT collection was Tk 87.69 billion. In the 2024-25 fiscal year, it was Tk 1925.88 billion. VAT is coordinated from businesses and buyers. It is coordinated in two ways - by reducing the amount of goods sold or increasing the price. In both ways, buyers are harmed.

Many economists say that the government is expanding VAT instead of increasing the scope of income tax. It puts the burden of indirect tax on low-income individuals. Almost everything the poor and low-income individuals buy carries VAT. Increasing VAT on consumables essentially reduces the savings of low-income people. On the other hand, the scope and rate of income tax being limited means it continues to increase the savings of the wealthy. The opposite is reasonable in any fair tax system.

Like the income tax system, the VAT system here can also incorporate less of the informal scope of the economy. Many informal suppliers are earning vast sums as intermediaries in cash transactions on hundreds of items.

They are not being included in the tax net; however, VAT at the production and consumer levels is increasing. To improve this situation, it is urgent to bring transactions massively into digital means. However, it also needs to consider that revenue collection should not take on the aspect of ''tax terrorism'' over middle and low-income hardworking entrepreneurs. It should focus on large capital, and at the same time, ensure that automation-dependent factories and employment-friendly industries are not victims of average tax.

*Altaf Parvez is a researcher
#The views expressed are the author's own.

*This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam.