The International Monetary Fund (IMF) has laid out the framework for Bangladesh’s revenue budget for the upcoming fiscal year and is closely monitoring whether its directives are being followed.
Economists warn that adhering to IMF prescriptions would necessitate increases in income tax, VAT, and import duties - measures likely to exacerbate inflation. This stands in stark contrast to the interim government’s stated commitment to curbing inflation, as declared by Chief Adviser Dr Muhammad Yunus in his administration’s maiden budget announcement.
National Board of Revenue (NBR) finds itself ensnared in a policy dilemma.
Former NBR chairman Dr Md Abdul Majid said that the IMF had set clear conditions to increase revenue collection even before extending its $4.7 billion loan package.
Although the then government accepted those conditions to secure the loan, many remain unfulfilled, with the revenue shortfall widening. Consequently, Bangladesh has yet to receive the fourth and fifth tranches of the loan.
Given this backdrop, it is only natural, economists say, that the IMF would offer "advice" to the NBR ahead of budget formulation.
However, if these are followed, fresh hikes in tax, VAT, and duties will become unavoidable, driving up costs across multiple sectors.
They caution that such inflationary measures in the interim government’s first budget would be detrimental to economic stability.
IMF representatives have already held several rounds of meetings with members of the NBR’s budget preparation committee. An IMF report submitted to the NBR outlines ambitious revenue reforms.
It recommends increasing the tax-to-GDP ratio by 0.7 percentage points by FY2025–26, eliminating all new tax exemptions and revoking existing ones.
Currently, only 5.2% of Bangladesh’s population is tax-registered, compared to over 23% in neighbouring India.
Expanding the taxpayer base is imperative, the report asserts, criticising the NBR’s weak enforcement.
Among other measures, the IMF recommends mandatory e-filing of income tax returns, 24/7 call centre support, and a unified 15% VAT rate instead of the existing tiered structure.
It also advises against withdrawing tariffs on high-demand goods and calls for area-based minimum income taxes, higher tax rates for large taxpayers, and increased corporate tax rates.
The Fund further urges the government to expand revenue offices nationwide, retract duty waivers on raw material imports, and reduce the scope of the bonded warehouse facility.
It has also called for swift resolution of tax-related cases stuck in the courts, recommending the use of alternative dispute resolution mechanisms. Ensuring scanner usage at ports is another key compliance point.
According to the IMF report, since FY2012–13 the NBR has consistently failed to meet annual revenue targets, often falling short by 10% to 20%. Mid-year revisions have become routine, yet targets remain unmet.
Typically, revenue targets are set 30% to 40% above actual collection from the previous year.
Preliminary NBR estimates reveal that the revenue shortfall for the first nine months (July–March) of the current 2024–25 fiscal year has already exceeded Tk650 billion.
The original revenue target for this fiscal year was set at Tk4.8 trillion but had to be revised down to Tk4.635 trillion after just six months. To meet even the revised target, the NBR must collect Tk1.2051 trillion in duties, an equal amount in income tax, and Tk1.71495 trillion in VAT.
Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), warned that the fiscal year may end with a revenue shortfall of up to Tk1.05 trillion.
She noted that the 2025–26 budget is being drafted at a time when the country faces grave economic challenges.
While increasing revenue is non-negotiable, she stressed that this should not come at the cost of new taxes or higher tariffs.
“Raising VAT, income tax, or duties as an easy fix would increase costs across multiple sectors,” she said.
“It would burden ordinary citizens and worsen their hardship. The upcoming budget must reflect long-term, integrated, and prudent policy choices.”
Bangladesh continues to fall short on four key conditions for the next two IMF loan tranches, one of which is its failure to meet revenue collection targets.
