Two crucial questions demand urgent attention in the upcoming budget of the 2025-26 financial year: how to increase domestic resource mobilisation, and how to ensure financing to tackle post-COVID poverty and harm done to income. These questions are not merely financial matters. There are tales of historical sufferings. They continue to haunt the development cycle. The third concern was discussed in an earlier column: “Is the budget a strategy to reduce the debt burden?”
The first suffering was about the looting of resources by the British colonialists. The economist Dadabhai Naoroji had calculated that towards the end of the 19th century, around 30 million to 50 million pounds were extracted out of India every year.
During the devastating famine of 1943, when hundreds of thousands perished in Bengal, the region still functioned as a revenue-generating engine for the empire. Bengal contributed 10 to 15 per cent of British India’s total tax revenue. It is most unfortunate that even as a post-colonial state, Bangladesh’s tax-to-GDP ratio stands at only 7.4 per cent. The South Asian average is 10 to 12 per cent, already well below the global average for developing countries. This is a tragic irony: the region once exploited for its revenue is now itself struggling to mobilise domestic resources.
The second suffering is about Lord Beveridge. He was the architect of the United Kingdom’s post–World War II social welfare system. Yet his birthplace, Rangpur, remains one of the poorest regions to this day. According to the Bangladesh Bureau of Statistics, the poverty rate in Rangpur stands at 24.8 per cent, that is, 6.1 percentage points higher than the national average of 18.7 per cent.
The British established a centralised revenue system by appointing British-trained, salaried district collectors instead of intermediaries like zamindars. To reduce corruption, they introduced land surveys, cadastral mapping, and the Permanent Settlement, enabling direct tax collection from farmers. Secondly, they strategically monetised the economy through the cultivation of cash crops such as indigo, opium, jute, and tea. While legal frameworks, administrative rigidity, exploitation, and coercion ensured colonial revenue extraction, the popular uprising of 2024 serves as a reminder that the core objective of a constructing a post-colonial state should be the pursuit of an equitable system.
Many hope that the budget will include a proposal for a universal, life-cycle-based social security system. Such a transformative initiative could play a vital role in overcoming the ‘lower social trap’ created by crises in livelihoods
Why is the revenue system not effective?
The roots of failure lie in patronage-dependent economy. According to the Centre for Policy Dialogue (CPD), in the 2022-23 fiscal year, tax evasion and illicit financial outflows cost the country an estimated Tk 2.26 trillion (2 lakh 26 thousand crore taka). Corporate tax evasion alone accounted for nearly half of this amount. The 'State of Tax Justice 2024' report states that multinational companies siphon off between three to five billion dollars annually through transfer pricing.
The reactionary nature of the tax system is further exacerbating inequality. Indirect taxes account for 66 per cent of the National Board of Revenue (NBR)'s total revenue collection, with 38 per cent coming from the flat-rate Value Added Tax (VAT). This places a disproportionate burden on low-income households. Only 1.4 per cent of the population files tax returns. The wealthy and elite are adept at exploiting loopholes, for example, by declaring themselves as non-residents or by reclassifying business profits as tax-exempt agricultural income.
Hundreds of thousands of retail businesses are evading VAT by underreporting their annual turnover under the guise of being “small shops.” According to the NBR, out of over three crore (30 million) businesses, only 550,000, or about 2 per cent, are registered for VAT. The informal e-commerce sector also operates without VAT registration. The customs administration is flawed. According to Global Financial Integrity, from 2009 to 2018, Bangladesh lost an average of USD 8.27 billion annually due to under- and over-invoicing of import and export goods. Additionally, prolonged legal entanglements fuel corruption, as seized goods lie in warehouses in uncertain conditions, creating further risks.
Modernising the revenue system
The current interim government is not in a position to undertake and implement the kind of major medium-term reform programmes needed to enhance domestic resource mobilisation. However, the budget can still present a reform strategy and a well-considered implementation plan to address the challenges. Here are five key pillars of the reform agenda:
First, the National Board of Revenue (NBR) should be replaced by an autonomous body. This new tax collection institution could be named the Bangladesh Revenue Authority.
A complete overhaul of the existing system is required to make it effective. Additionally, a separate policy-making institution could be formed by incorporating the existing Tariff and Trade Commission, and named the Bangladesh Tax and Tariff Commission. The core mandate of this body would be to move away from a patronage economy and strategically advance the monetisation of the economy.
Second, the tax code needs to be modernized with a focus on direct taxation. Simplifying the system, mandating digital payment methods, and establishing tax offices at the upazila level would help expand the tax base.
Third, it is essential to introduce technology-driven monitoring mechanisms. For instance, a Tax Identification Dashboard, integrating data from electricity bills, bank transactions, and land records, could enhance oversight. Block chain tracking for bonded warehouses and AI-powered risk assessments would help prevent fraud.\Fourth, enacting an effective transfer pricing law is urgent. Multinational companies must be required to submit master and local files as well as country reports. Strict penalties should be imposed for profit shifting.
Fifth, a green tax framework could be introduced. A carbon tax (for example, Tk 1,200 taka per tonne) could be levied on high carbon-emitting industries such as cement and textiles. The revenue generated could be allocated to the climate adaptation fund.
From multidimensional crises to universal social security
The country is facing multidimensional crises. According to World Bank projections, the poverty rate will rise from 20.5 per cent in 2024 to 22.9 per cent in 2025. Low spending on education and health (respectively 2 per cent and 2.34 per cent of the GDP), coupled with poor education results and high rates of youth not engaged in higher education, employment, or training (41 per cent nationally and 62 per cent among women), pose serious challenges to achieving demographic dividends. These multiple challenges also hinder the achievement of sustainable development goals.
There is rapid urbanisation, but cities are not becoming livable. Economic productivity is not increasing proportionally with the growing population density. The severe impacts of climate change could result in a loss of 5 to 7 per cent of the GDP.
Government allocations for social safety nets are inadequate, flawed, ridden with corruption, and politicised. Social safety net programmes are relief-based and have not yet become universal or rights-based. More than 100 fragmented programmes need to be brought under a single administrative authority.
Many hope that the budget will include a proposal for a universal, life-cycle-based social security system. Such a transformative initiative could play a vital role in overcoming the ‘lower social trap’ created by crises in livelihoods and build resilience so that citizens are not left behind by economic shocks.
A system like this would be a fitting tribute in memory of Abu Sayeed, who grew up in the village Babanpur of Pirganj upazila, Rangpur and was martyred in July 2024. Rangpur is also the very same district where Lord Beveridge was born.
* Dr. Rashed Al Mahmud Titumir is a professor of the Department of Development Studies, University of Dhaka
* The opinions expressed are those of the author.