As Bangladesh prepares to announce its national budget for fiscal year 2026-27 in June 2026, debate over taxation and revenue reform has regained urgency. The country stands at a delicate economic crossroads. A new government is in office with strong public expectations for stability, affordability, and reform. At the same time, global uncertainty has intensified due to escalating conflict involving the United States, Israel, and Iran, triggering disruptions in global energy markets. In this fragile environment, fiscal decisions-particularly those relating to taxation-must be handled with prudence, sensitivity, and long-term vision. While revenue is crucial for development, it must be balanced with social security for the populace.
Governments levy VAT & taxes on individuals and businesses to generate revenue that funds national priorities and supports sustainable growth. These revenues finance healthcare, education, infrastructure, social protection, defense, and public administration. Tax policy also shapes investment, consumption, savings, and income distribution, thereby influencing productivity, employment levels, and overall GDP performance.
A nation's ability to provide healthcare, education, climate resilience, social protection, and infrastructure depends on mobilizing domestic revenue. In Bangladesh, that responsibility lies primarily with the National Board of Revenue. Over the past decade, it has introduced digital tax filing, automated customs systems, electronic VAT registration, and data integration initiatives. These steps improved transparency and convenience, yet Bangladesh still has one of the lowest tax-to-GDP ratios in Asia and the lowest in South Asia.
More than 50% of individuals with taxable income remain outside effective tax payment, and a significant number of e-TIN holders regularly file zero-tax returns, reflecting weak compliance and enforcement gaps. To raise sustainable revenue, the NBR must broaden the tax base, strengthen monitoring, simplify procedures, reduce harassment, and address the economic, administrative, and trust-related factors that discourage voluntary tax compliance.
The low tax base reflects deeper structural realities: a large informal sector, underreporting of income, limited direct tax coverage, and overdependence on indirect taxes. VAT and customs duties account for a major share of collection. Though VAT is efficient in theory, it places a higher proportional burden on lower- and middle-income households because it applies uniformly regardless of income. During high inflation, greater reliance on consumption taxes intensifies hardship.
The global context has made this dilemma more acute. Military escalation involving the United States and Israel against Iran has destabilized the Middle East and disrupted energy supply chains. With tensions affecting the Strait of Hormuz, international fuel prices have surged. For Bangladesh, a net energy importer, this means higher import bills, pressure on foreign reserves, and rising domestic fuel costs. Energy price hikes cascade into transport costs, food prices, electricity tariffs, and industrial expenses, renewing inflationary pressure as households already struggle.
“Public reluctance to pay taxes cannot be blamed solely on citizens.
Many face harassment from tax offices. Authorities often burden ordinary
people instead of focusing on wealthy tax evaders. Widespread
corruption within tax administration deters compliance”
In such circumstances, imposing heavier taxes on ordinary citizens could have serious economic and political consequences. Consumption would decline, small businesses would suffer, and dissatisfaction could intensify. Revenue mobilization must therefore be calibrated carefully. The goal should not be to extract more from those already stretched, but to broaden the base, improve compliance among high-income groups, and reduce system leakages.
Public reluctance to pay taxes cannot be blamed solely on citizens. Many face harassment from tax offices. Authorities often burden ordinary people instead of focusing on wealthy tax evaders. Widespread corruption within tax administration deters compliance. Citizens expect public services in return for taxes, yet service delivery remains inadequate. Moreover, meaningful social security benefits are largely absent from the tax system.
The FY2026-27 budget offers an opportunity to rethink the link between taxation and social security. Bangladesh operates various safety net programs for the elderly, widows, persons with disabilities, and vulnerable families, but these are fragmented and modest. A framework linking tax contributions to future entitlements could reshape public attitudes.
In many developed countries, paying taxes is viewed as long-term security because governments support the disabled, retired, unemployed, and disadvantaged, and guarantee healthcare and education. Many countries refund VAT to departing tourists since they are not entitled to benefits. In Bangladesh, however, taxation is not meaningfully connected to social security.
In addition, VAT was implemented in Bangladesh on July 1st, 1991. In theory, even a poor person pays the VAT when buying any goods, making it the government's biggest source of income. However, the issue is that many vendors do not correctly pay VAT, and even clients in our nation do not request a VAT receipt in order to pay a little less. The revenue would have increased significantly and might possibly surpass the goal if the VAT loss could be minimized. The alignment of social security payments with VAT is crucial for both the buyer and the seller.
To encourage the citizens to pay VAT and taxes, the government of Bangladesh should take a program relating tax payment with long-term social security of the citizens. Whenever a citizen pays tax that will be documented against his NID or social security card under the program. The VAT on every purchase should also be recorded for each taxpayer against his NID or social security card. A taxpayer will get compensation in lieu of the taxes he has already paid when he becomes handicapped, retires, or loses his job. A certain portion of his paid VAT and taxes will act as his pension or insurance at hard times. If a taxpayer dies with dependent family members, then they should receive benefits from the government similarly.
Communication strategy also matters. Rather than framing taxation solely as a legal obligation, policymakers should emphasize its role in funding visible improvements: rural clinics, agricultural subsidies, renewable energy projects, river dredging, educational scholarships, and digital infrastructure. When citizens associate tax payments with concrete public goods, voluntary compliance improves.
The geopolitical turmoil in the Middle East offers a broader lesson. Bangladesh cannot control global conflicts, but it can strengthen its internal resilience. In order to fund social security for its residents, the government should set aside 50% of its earnings for spending and the remaining 50% for investment. If it does, paying taxes will appear to be a savings, which will motivate residents to do so. Only providing certain facilities to the CIPs or Tax-Champions is not going to help. While we target to bring the ordinary citizens under tax net, we must also ensure social security and services for them.
For the new government, the challenge is to balance ambition with realism. Revenue targets should be credible and grounded in macroeconomic conditions. Aggressive projections that rely on steep tax hikes could undermine economic recovery. Instead, emphasis should be placed on administrative reform, digital expansion, and broadening the direct tax base. Equity must guide policy. Those with greater capacity to pay should shoulder a fairer share of responsibility.
The writer is Chief Editor at Mohammadi News Agency (MNA) and Editor at Kishore Bangla
