Revenue growth: IMF says possible, NBR wants more time

The International Monetary Fund (IMF) has pressed Bangladesh to raise its tax-to-GDP ratio to 9 percent in the 2025-26 fiscal year, a key condition tied to the country's ongoing loan programme.

The National Board of Revenue (NBR), however, has yet to articulate a clear strategy for how it intends to meet that target.

During a review meeting with the IMF delegation in Dhaka on Monday, the NBR formally proposed a reduction in the ambitious target.

The IMF delegation, however, rejected the request, maintaining that Bangladesh has the capacity to boost domestic revenue collection.

According to the loan agreement, the NBR must collect an additional Tk 570 billion in the 2025–26 fiscal year.

The government’s current tax-to-GDP ratio has left the NBR under pressure to raise the figure by 0.5 percentage points in the ongoing 2024-25 fiscal year.

According to the latest data from the NBR, the agency collected Tk 2.52 trillion over the first nine months of the fiscal year.

To stay on course with the IMF conditions, it must collect an additional Tk 1.98 trillion in the final quarter—a steep target with limited time remaining.

To raise the tax-to-GDP ratio to 9 percent in the 2025-26 fiscal year, total revenue collection will need to reach Tk 5.7 trillion.

AKM Badiul Alam, a senior NBR official overseeing income tax policy, sad: “We increased the ratio from 7.3 to 7.4 percent in the last fiscal year.”

“The IMF knows our political reality. Still they raised it. But they say that Bangladesh has the capacity to collect more.”

"They have not deviated from the conditions of their target. Tax-to-GDP will have to be increased by 0.5 percent in the current fiscal year; in total, Tk 4.55 trillion in revenues will have to be collected in the fiscal year."

Noting that the NBR chairman is expected to attend the upcoming IMF board meeting, Badiul said: “I hope we can convince them there.”

Bangladesh secured a $4.7 billion loan from the IMF in 2023, following months of negotiations prompted by mounting economic pressures.

So far, the country has received $2.21 billion in three instalments.

The interim government has voiced hope that the fourth and fifth tranches will be disbursed together in June.

The loan package came with a series of conditions aimed at improving fiscal governance.

These include recommendations for reforming the financial sector, strengthening internal financial management, and boosting domestic revenue collection.

Each disbursement is contingent upon the IMF’s review of the government’s progress in implementing these reforms.

Ahead of every instalment, a delegation from the IMF travels to Dhaka to assess compliance and meet with relevant stakeholders.

As in previous rounds, an 11-member IMF delegation has arrived in the capital for a new round of meetings.

The team is expected to hold discussions with relevant parties on Apr 17.

After a busy first day in Dhaka on Sunday, the delegation continued its visit with a session at the NBR headquarters on Monday.

Speaking of the meeting, an official from the VAT policy branch of the NBR said the agency was asked to explain how it would collect an additional Tk 570 billion in the upcoming fiscal year.

“We said it is impossible,” the official recounted.

“We asked them to reduce the target, but they did not agree.”

The official noted that the IMF is scheduled to meet again on Wednesday with all three divisions of the NBR to continue discussions on the matter.

He also expressed concern that if these conditions are not met and if the issues are not properly explained to them, it could affect the IMF delegation's review visit.

Still, several NBR officials who participated in the meetings expressed cautious hope that some flexibility may be offered this time, pointing to ongoing efforts to negotiate the conditions with the IMF delegation.

The IMF, for its part, has proposed a number of measures aimed at raising revenue.

These include increasing the supplementary duty on luxury goods, ending several sector-specific tax exemptions after June, and imposing a standard 15 percent value-added tax across all goods and services.

In addition to revising tax policies, the NBR is also pursuing administrative reforms.

These include the separation of revenue policy and administration, advancement on medium- and long-term fiscal strategies, progress on a digitalisation initiative within the Income Tax Department, and the establishment of firm deadlines for online filing of corporate tax and returns.

Under the terms of the loan agreement, the NBR must collect Tk 1.98 trillion between April and June.

Bangladesh’s current tax-to-GDP ratio stands at 7.4 percent.

The IMF has called for a 0.5 percentage point increase—to 7.9 percent—within the current fiscal year, requiring the NBR to raise a total of Tk 4.55 trillion in revenue before Jun 30.