About the project

Partner: Friedrich-Ebert-Stiftung (FES)
Project duration: November 2025 – On going

As Bangladesh transitions from a Least Developed Country (LDC) to a middle-income economy, domestic revenue mobilization has become a critical challenge. Despite strong economic growth, the country's tax-to-GDP ratio remains between 7% and 9%, significantly lower than regional peers in South and East Asia. This limited fiscal space hinders the government’s ability to fund essential infrastructure, social protection, and climate adaptation initiatives necessary for achieving the Sustainable Development Goals (SDGs).
The Core Challenge
The current tax structure in Bangladesh relies heavily on indirect taxes, such as Value-Added Tax (VAT), while personal and corporate income taxes contribute a much smaller share. This imbalance raises concerns regarding social justice, as indirect taxes often place a disproportionate burden on poor households. Furthermore, less than 1% of the population currently declares income tax, a figure that lags far behind regional neighbors.

Our Research Approach:
This study utilizes a mixed-method approach to provide a comprehensive view of the national tax system:

• Quantitative Modeling: Using the 2022 Household Income and Expenditure Survey (HIES), we estimate the potential revenue from both personal income tax and VAT.
• Wealth Simulation: We analyze how tax burdens interact with household wealth and income distribution to determine if the system over-imposes on vulnerable groups or the emerging middle class.
• Qualitative Analysis: We examine secondary literature to understand the institutional and political variables influencing corporate taxation, tax governance, and compliance.

Project Objectives:
The ultimate goal of this research is to inform the design of a tax system that is equitable, transparent, and open. Key research objectives include:

• Estimating the potential revenue if full compliance with the 2022 income tax schedule was achieved.
• Identifying how changes in tax policy might shift the fiscal burden across different wealth quintiles.
• Evaluating the impact of tax exemptions and governance bottlenecks on revenue collection.
• Formulating policy reforms that reconcile the need for revenue mobilization with the protection of vulnerable populations.

Expected Impact:
The ultimate goal of this research is to inform the design of a tax system that is equitable, transparent, and open. Key research objectives include:

By quantifying the "tax gap" and analyzing the progressivity of various tax instruments, this project provides the National Board of Revenue (NBR) and policymakers with an empirical foundation for reform. We aim to contribute to a national dialogue on creating a socially just taxation system that fosters public trust and supports inclusive economic growth.