NBR faces steep climb to meet target amid strains. Can strategies help revenue recovery?

Despite showing signs of recovery following political unrest in July and August, the National Board of Revenue (NBR) remains far from achieving its revenue collection target of Tk 4.63 trillion for the 2024-25 fiscal year.

As of the end of March, the shortfall stands at over Tk 650 billion, a staggering figure that casts doubt over the feasibility of meeting year-end goals.

The challenge is compounded by pressures tied to International Monetary Fund (IMF) loan conditions, which demand structural fiscal reforms and heightened revenue mobilisation. While the NBR has introduced a series of measures, including a mid-year VAT increase on over 100 products, the impact has so far been minimal.

NBR Chairman Md Abdur Rahman Khan has expressed concern that promised tariff cuts on a range of US imports, part of efforts to reverse duties imposed by President Donald Trump, will further dent revenue streams.

Officials acknowledge that without stronger tools, including legal and administrative instruments, meeting the budget target or the IMF’s benchmarks remains unlikely.

According to policymakers within the NBR, even under optimistic assumptions, an additional Tk 400 billion in revenue could only be raised through aggressive steps: reducing tax exemptions in income tax, VAT, and customs; collecting arrears; expanding administrative capacity; and selectively increasing rates.

INTERNAL UNREST UNDERMINES MOMENTUM

The agency has also been rocked by internal turbulence. A recent ordinance issued by the interim government on May 12 sought to split the NBR into two separate wings--Revenue Management and Revenue Policy, effectively dissolving the organisation in its current form.

In response, NBR staff launched two weeks of continuous protest, opposing what they perceived as a bureaucratic dismantling of the institution.

The government eventually reversed course, withdrawing the amendment and granting the NBR the status of a “specialised department”.

However, analysts warn that such turmoil could further delay recovery in an already sluggish economy.

In pre-budget consultations, the NBR hinted at raising corporate tax rates in selected sectors as a way to shore up government revenue.

While revenue growth had hovered between 10 and 15 percent in recent years, the current fiscal year has seen a marked slowdown, reflecting wider economic pressures.

ECONOMISTS CALL FOR STRUCTURAL REFORMS

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, argues that simply raising tax rates is unlikely to solve the problem.

Instead, he recommends a strategic crackdown on systemic tax evasion, which he links to corruption and informal negotiations within the tax collection process.

“Not all tax evasion is the taxpayer’s fault,” Hussain told bdnews24.com. “A taxpayer might pay half of what they owe, but where does that money go? Often, it ends up in someone else’s pocket.”

He believes the key to boosting revenue lies in eradicating bribery and misuse of authority, thereby easing the burden on compliant taxpayers and restoring trust in the system.

TAX EVASION DOUBLES OVER A DECADE

His concerns are backed by a recent study from the Center for Policy Dialogue (CPD), which found that Bangladesh lost an estimated Tk 2.26 trillion in revenue due to tax evasion in 2023--more than double the Tk 965 billion lost in 2012.

The report, titled “Corporate Income Tax Reform for Graduating Bangladesh: The Justice Perspective”, reveals that corporate tax evasion alone accounts for Tk 1.13 trillion, around half of the total loss.

This presents a compelling case for urgent reforms in tax policy, emphasising the need for accountability and integrity in the system.

With the fiscal clock ticking and IMF deadlines looming, many experts believe the NBR’s path forward hinges not on rate hikes, but on restoring credibility and efficiency within its own ranks.

BUDGET APPROACHING

As Bangladesh crossed the third quarter of FY2025, the economic picture remained bleak. The political upheaval and violence triggered by the July Uprising at the start of the fiscal year have left trade, production, and development programmes deeply disrupted.

In response, the government revised down its revenue target from Tk 4.8 trillion to Tk 4.63 trillion. The NBR set monthly collection goals to meet this adjusted target, yet from July 2025 to March 2026, actual revenue fell short by Tk 656.66 billion.

The IMF has stipulated a collection target of Tk 4.55 trillion for the full fiscal year. This means the government must now raise Tk 1.98 trillion in the final quarter alone—an average of over Tk 660 billion per month.

By comparison, average monthly revenue during the first nine months of FY2025 stood at just Tk 285 billion.

Economist Zahid Hussain described achieving this goal in the final quarter as a “significant accomplishment,” though he noted such outcomes typically reflect the clearing of arrears or tax appeals, rather than underlying economic momentum.

PERKS OF INCREASING VAT

In a bid to enhance revenue collection, the interim government opted for a straightforward strategy to align with the IMF's loan conditions.

The agency raised supplementary duties and VAT on over a hundred goods and services, aiming to boost collections by Tk 120 billion. However, contrary to expectations, VAT collection experienced negative growth.

Following this decision on Jan 9, VAT collection did show a growth of 10.88 percent year-on-year. However, growth quickly slowed to just 1.13 percent in February, and while there was a slight uptick of 1.18 percent in March when compared to the same month last year. These figures were far from encouraging.

Md Mashiur Rahman, first secretary of the NBR's VAT policy division, said: “Among the top 10 sectors, we imposed tax increases solely on cigarettes. We recognised that oil is a major revenue source and chose not to increase taxes there.

“Similarly, we refrained from raising taxes on gas. Although we initially increased taxes on pharmaceuticals, we later retracted those increases. Consequently, the anticipated revenue from these tax hikes has not materialised.”

He pointed out that the decrease in VAT collection was largely due to the government's cutbacks on development programs, which have historically played a significant role in revenue generation.

Also, the slowdown of mega projects has resulted in reduced private sector consumption of essential materials such as rods, cement, and sand, further stifling our revenue collection efforts.

BOOSTING REVENUE

Critics, including Zahid, have challenged the strategy of increasing revenue through tax hikes amidst high inflation, asserting that this approach is unlikely to bear fruit in the coming fiscal year.

He posed a critical question, “If you increase the rate, what will you boost—production or consumption? Such measures will only exacerbate inflationary pressures.”

When exploring alternatives to raising tax rates, SMAC Advisory Services Director Snehasish Barua said: “The only viable path to enhancing tax and VAT collection right now hinges on increasing the taxpayer base. It is essential for taxpayers to submit their tax and VAT returns accurately and to reflect genuine transactions and issues in these submissions.”

Regarding VAT collection, he noted that every market or area has shop owners’ associations. If the NBR can effectively convey the importance of tax and VAT filing to these associations, it could catalyse a significant rise in the number of tax and VAT return filers.

REVENUE COLLECTION OUTLOOK

Every year, the government establishes a target for the NBR within the budget, typically assuming a growth rate of 12 percent or slightly more compared to the previous fiscal year.

However, given the current circumstances where the NBR has fallen behind, achieving this newly revised target demands an ambitious growth of approximately 25 percent, a feat the organisation has found increasingly difficult in recent years. The NBR has usually experienced an annual growth rate of about 10 percent to 15 percent.

The COVID-19 pandemic brought about a period of negative growth. Yet, despite concerns at the beginning of this fiscal year, the NBR now forecasts a more hopeful trajectory with the potential for significantly higher growth.

In the FY2024, the NBR successfully collected over Tk 3.82 trillion, marking an impressive 15.48 percent increase compared to the Tk 3.31 trillion raised in the previous fiscal year 2022-23, underscoring the potential for robust revenue growth when the right strategies are implemented effectively.

NEW FISCAL YEAR CHALLENGES, WHAT STEPS TO TAKE?

The caretaker government has adopted a contractionary policy, reducing the implementation of development projects.

In this context, reports suggest plans to cut the current budget of Tk 7.97 trillion by around Tk 70 billion.

The NBR may set a revenue collection target of Tk 4.99 trillion, which is over 7 percent higher than the revised target for the current fiscal year.

With revenue collection around Tk 4 trillion this year, achieving the new target would require nearly 25 percent growth--something the institution has never attained.

This challenge is compounded by pressure from the IMF, which wants NBR to increase tax revenue by Tk 570 billion by raising rates in sectors where tax rates are currently low.

The ongoing tariff war under the Trump administration has become another hurdle.

The government has decided to reduce tariffs to maintain bilateral trade with the US, putting additional pressure on NBR.

NBR chief believes that Bangladesh’s tariff rates are higher compared with competitor countries and need “rationalisation”.

“The US Treasury has certain arrangements where we have commitments. We need to rationalise our duty structure, which will reduce collection. Similarly, income tax areas such as minimum tax and TDS are very high; if we rationalise these, collections will also decrease,” Abdur said.

Amid rising government expenditure needs, he indicated in pre-budget discussions that the agency is exploring options to increase corporate tax rates in select sectors.

Zahid strongly advocated against raising rates and instead emphasised reducing tax evasion.

He proposed unifying the different rates under Harmonised System (HS) codes to close off negotiation loopholes between businesses and officials.

CPD Research Director Khandaker Golam Moazzem described the current situation as a “major challenge” for Bangladesh, currently preparing to graduate from the Least Developed Countries (LDC) list, in boosting revenue collection.

Speaking at a briefing in Dhaka, he recommended strengthening NBR’s institutional capacity, improving the digital infrastructure of the tax system, and implementing policy reforms to address these challenges.

He also suggested ending sector-based tax exemptions granted to encourage investment.

Snehasish of SMAC Advisory Limited suggested shifting focus towards a cashless economy to improve tax collection efficiency and compliance.

WHAT IS NBR DOING?

Under pressure from the IMF and the US tariff war, the NBR is planning steps to boost revenue.

A senior policy official said: “We are focusing on tariff rationalisation in the budget. This includes setting uniform tariffs on similar products and reducing unnecessary tariffs to remove trade barriers.

“We will also cut many redundant HS codes to limit opportunities for discrimination.”

“These measures will support the post-LDC graduation period and address the tariff war. Several exemption-related SROs will be withdrawn without extension.”

Following the VAT increase in January, a VAT policy official said only minor legal “adjustments” will be made in the budget, with no major changes to VAT on goods and services.

Discussions are also under way to rationalise excise duties related to bank deposits and loans, he added.

On the ready-made garment (RMG) sector, an income tax official said raising corporate tax rates is under review. “The export sector has enjoyed lower rates for years, causing inequalities.

“We are analysing and consulting stakeholders due to current pressures.”

According to the official, tax exemptions in the RMG sector exceed Tk 40 billion annually. Halving these exemptions could add Tk 20 billion in revenue.

Attention is also being paid to misuse of tax exemption facilities, where politicians and some former officials are reportedly taking advantage of exemptions meant for genuine farmers and poultry and fisheries farmers.

Currently, the corporate tax rate for the export-oriented ready-made garment industry is set at 12 percent, and 10 percent for green factories. These rates are effective until Jun 30, 2028.

Officials said steps are being taken to simplify tax laws, fix legal gaps, ease return filing, and rationalise withholding tax rates to boost revenue collection ahead of the new fiscal year.