How to raise revenue without hurting growth

As Bangladesh looks toward its next government, fiscal policy will be central to the economic debate. Rising development needs, climate vulnerability, and higher debt-servicing costs make stronger domestic revenue mobilisation unavoidable. Yet the real question is not whether Bangladesh needs more revenue, but how it can raise it without undermining private investment, growth, and jobs.

Bangladesh’s tax-to-GDP ratio, stuck at around 8-9 percent, remains among the lowest in Asia. This chronic weakness limits the state’s ability to invest in critical sectors. The common response is to search for new taxes or higher rates. That approach, however, risks extracting vitality from an economy already facing global and domestic headwinds. A more sustainable solution lies in fixing the plumbing of the existing tax system.

Bangladesh effectively operates two economies side by side. A small group of compliant taxpayers, mainly salaried employees and formal firms, carry a disproportionate burden, while a vast potential base remains outside the net. Fewer than one percent of the population file income tax returns. Affluent professionals, digital entrepreneurs, urban property owners, and many high-income self-employed individuals are lightly taxed or not taxed at all.

Meanwhile, the state relies heavily on tax at source, regressive import duties and indirect taxes because they are easier to collect.

Many citizens ask a simple question: what do I get for my taxes? Without visible improvements in service delivery, fairness, and accountability, voluntary compliance will remain weak. Revenue mobilisation cannot be separated from expenditure quality and governance.

Policy distortions further weaken the system. The widespread use of Statutory Regulatory Orders has created a discretionary, opaque, and unpredictable tax regime.

For investors, uncertainty and uneven enforcement often matter more than tax rates. Similarly, the VAT system, fragmented by multiple rates, truncated bases, and exemptions, has become complex and prone to evasion.

For small and medium enterprises, VAT is feared less for its cost than for its paperwork, discretion, and compliance risks.

This exposes a major blind spot in Bangladesh’s revenue debate: the exclusion of millions of small traders and micro-entrepreneurs.

Although the informal sector accounts for over one-third of GDP and employs most workers, tax compliance for small businesses remains administratively burdensome. Income tax filing often requires professional help, while VAT compliance is even more complex, keeping most traders outside the system. At the same time, the revenue administration lacks the manpower and technology to monitor millions of micro-enterprises, making universal compliance unrealistic.

A practical solution is tax simplification. Countries such as India, Indonesia, Turkey, Brazil, and Kenya have broadened their tax base through flat-rate or simplified regimes. India’s GST Composition Scheme, for example, brought millions into the formal system by allowing traders to pay a low, fixed share of turnover with minimal paperwork.

A Bangladesh-specific model could combine a fixed annual income tax with a simplified VAT based on shop size, turnover band, or location, supported by digital payment incentives. This would reduce fear of audits, ease pressure on the National Board of Revenue, and expand the tax base. Rapid growth in e-commerce and platform-based work requires clear, predictable tax rules that do not stifle innovation.

Beyond SMEs, Bangladesh must also address hard-to-tax but high-potential areas: the digital economy, property, land, and wealth. Ultimately, the fiscal challenge is not just about revenue, but governance. The next government has an opportunity to move away from coercion to a fair, predictable, compliance-based system. The reward is not just higher revenue, but a stronger social contract, a more legitimate state, and a more competitive private sector.

The writer is the chairman of Unilever Consumer Care