Bangladesh’s tax-GDP ratio lowest in Asia-Pacific: OECD

Bangladesh sits at the bottom of a list of 37 countries in the Asia-Pacific region in terms of the tax-to-GDP ratio, largely stemming from the failure to tap into the potential originating from the steady growth of the economy and a lack of reform.

The South Asian country had a tax-GDP (Gross Domestic Product) ratio of 7.3 percent in 2023, almost one-fifth of the Pacific Island nation Niue, which had a tax-GDP ratio of 35.3 percent, according to the latest report by the Organisation for Economic Co-operation and Development (OECD).

Bangladesh's revenue collection was also far below the regional average of 19.6 percent of GDP across the region as a whole, shows the report titled Revenue Statistics in Asia and the Pacific 2025.

It states that tax revenues increased on average across the Asia-Pacific region for the third consecutive year in 2023, driven by higher VAT receipts.

Most revenue comes from VAT, import tariffs

As per the OECD report, Bangladesh, along with 23 other countries in the region, is heavily dependent on value-added tax (VAT) and import tariffs for its tax revenue.

In 2023, the country collected most of its revenue — 4.7 percent of its GDP — from goods and services, namely through VAT and import tariffs, it states.

In terms of direct taxes, the country's income tax collection amounted to only 2.5 percent of the GDP, well below the average of 7.4 percent of GDP in Asia-Pacific, the report also states.

In total, 34 percent of the revenue collected by the country in 2023 came from income taxes, while the rest came from taxes on goods and services.

The OECD report noted that Bangladesh, like many other developing economies, struggles to improve the quality of revenue officials.

"Developing economies in Asia and the Pacific struggle to raise the quality of their tax administration staff, in part because it is difficult for governments to pay competitive salaries, but also because of rigidities in civil service systems and reluctance to reform.

"Bangladesh is a case in point, even if it is not unique in the region for this problem," it says.

Speaking on the matter to The Daily Star, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue (CPD), said Bangladesh's ability to mobilise tax revenue is becoming a binding constraint for its development finance.

"Our entire development finance is now dependent on borrowing, and the debt burden and debt servicing liability are increasing exponentially. In fact, we are now paying back our outstanding debt-related payments by borrowing more," he pointed out.

"The policy solutions are largely known. Tax reform should result in an increasing tax-GDP ratio," he also said, adding that it should be based on two fundamental approaches — establishing tax justice and curbing tax evasion.

In the past, he said, these fundamental pillars were undermined.

Speaking on the ongoing tax reform initiative by the government, he said, "The process needs to be transparent, participatory, and accountable. A medium-term approach will be critical.

"Unfortunately, the political actors are completely absent in this process to date, either by design or due to lack of demand. The political parties need to realise that most of their political pledges in the run-up to the election may not be delivered if tax reforms are not done prudently."