Bangladesh's CPD calls for reforms in biz & tax climate, trade deals

Bangladesh must urgently overhaul its revenue system and reduce the cost of doing business to ensure sustainable growth and smooth graduation from the least developed country (LDC) status.

The country’s tax-to-gross domestic product (GDP) ratio has dropped to nearly 6.8 per cent—the lowest in South Asia—significantly weakening fiscal capacity at a time of rising development needs.

The new government has vowed to raise the ratio to 10 per cent in the medium term and 15 per cent by 2035. But CPD cautioned that revenue sustainability would remain uncertain without prioritising tax justice and plugging systemic leakages.

A CPD study identified ‘leaking revenue’ as the weakest area across all decision-making indicators.

CPD recommended consolidating the current eight value-added tax (VAT) slabs into a simplified three-tier structure: standard, reduced and zero rates, with a long-term transition toward a two-tier system.

Mandatory digital tax return submission, establishment of a digital tax dispute resolution system within 30-45 days and performance-based corporate tax incentives were among the key recommendations.

CPD also suggested linking revenue gains from VAT rationalisation to direct transfers for low-income households instead of broad reduced-rate exemptions.

Bangladesh’s business environment continues to suffer from transport-logistics bottlenecks, unreliable utilities, regulatory complexity, corruption, weak human capital alignment and fragile banking systems, CPD noted in a report.

It cautioned that corruption in administrative processes remains the most severe constraint to ensuring an enabling business environment.

It called for setting up tax and banking ombudsmen to address grievances and strengthen institutional accountability.

In the financial sector, CPD flagged high non-performing loans (NPLs) and limited access of small and medium enterprises (SMEs) to financing as major barriers.

It urged the central bank to innovate credit assessment models, develop inclusive SME financing options with lower collateral requirements and exercise caution in interest rate reduction to avoid inflationary pressures.

Several clauses in the recently-signed ‘Agreement on Reciprocal Trade’ between Bangladesh and the United States may restrict the former’s trade policy autonomy as it includes discriminatory provisions related to import licensing, technical standards and digital trade.

Bangladesh would not be allowed to impose digital service taxes on US companies or introduce customs duties on electronic transmissions under the agreement.

Other provisions affecting Bangladesh cited include restrictions on retaliatory VAT measures, limitations on agreements with third countries that conflict with US standards and preferential access for certain US goods.

CPD identified six major structural challenges in attracting and retaining FDI: fragmented approvals, policy unpredictability, institutional overlap, slow dispute resolution, land access bottlenecks and weak data systems.

Fibre2Fashion News Desk (DS)