DHAKA, April 26, 2026 (BSS) - The Policy Research Institute (PRI) today organized a policy dialogue titled “Rationalizing Supplementary Duty and VAT in Bangladesh: Evidence, Challenges, and Reform Pathways,” bringing together policymakers, economists, development practitioners and industry leaders to discuss pressing challenges in the country’s tax system and identify reform priorities amid widening revenue pressures.

The event was attended by Zakir Ahmed Khan, Chairman of the Palli Karma Sahayak Foundation (PKSF), as Chief Guest, who stressed that the core challenge in Bangladesh’s tax reform is not a lack of technical understanding but weak implementation capacity and insufficient attention to political economy realities. 

He noted that once-a-year consultations with individual sectors are inadequate and recommended more frequent, structured sectoral engagements to better understand the spill over effects of tax policy changes.

 He also emphasized that improving enforcement of existing tax laws, particularly addressing widespread cash-based transactions and underreporting, represents the most immediate opportunity for revenue enhancement.

Zakir Ahmed Khan further underscored the importance of institutional reform, particularly separating tax policy from tax administration. 

He argued that tax policy should be developed by a dedicated, research-driven unit with inter-agency coordination, while the National Board of Revenue (NBR) should focus on enforcement. 

He also highlighted that Bangladesh is currently facing a significant revenue shortfall, estimating a gap of around TK 100 billion in the current fiscal year, and stressed the urgency of reforms ahead of the next budget cycle.

The session was chaired by Dr. Zaidi Sattar, Chairman of PRI, who reiterated the need for a more efficient and balanced tax structure. He noted that Bangladesh’s import tax regime, including customs duties, regulatory duties and supplementary duties, has contributed to higher domestic prices compared to international levels, creating significant distortions in consumer markets. 

He emphasized that an optimal supplementary duty structure is required to maximize revenue without discouraging economic activity, in line with efficiency principles.

Special guest Fariduddin Ahmed criticized the outdated administrative and data systems of the NBR, stating that annual reports are significantly delayed and that tax administration remains largely manual. 

He also pointed to concerns regarding customs valuation practices and described the existing tariff structure as highly complex, involving over 100 rate categories.

He reiterated the need for immediate institutional separation of tax policy and administration and modernization of the tax system.

In the keynote presentation, Dr. Bazlul Haque Khondker highlighted structural inefficiencies arising from the simultaneous application of VAT and supplementary duties on the same tax base, leading to cascading effects.

He recommended aligning Bangladesh’s system with international best practices by ensuring proper sequencing of excise and VAT. 

He also pointed out that although Bangladesh maintains a standard VAT rate of 15 percent, VAT productivity remains low due to a narrow tax base and compliance weaknesses. 

He further observed that revenue growth has sharply declined in recent years, while a lack of reliable micro-level data continues to constrain evidence-based policymaking.

Another keynote speaker, Hafiz Chowdhury, emphasized the need to redesign excise taxes to better reflect health and environmental externalities. 

He argued that many selective taxes in Bangladesh have effectively become additional VAT or trade taxes rather than targeted instruments and recommended shifting toward specific taxation based on measurable harm content such as sugar or tobacco volume. 

He also stressed the importance of digital enforcement tools, including track-and-trace systems, to reduce compliance gaps.

Panel discussions also highlighted concerns regarding regulatory distortions and declining revenue performance. 

Shamsul Huq Zahid noted that high regulatory duties on certain imports, including sugar, often serve protective industrial purposes rather than revenue or public health objectives. 

Zakir Hossain pointed to a widening revenue gap, estimating a shortfall of around TK  100 billion in the current fiscal year, and stressed the need for improved transparency through publication of sector-wise revenue data by the NBR.

Representatives from the World Bank supported the need for clearer alignment of tax instruments with their intended policy objectives, noting that VAT should primarily serve revenue mobilization, income and property taxes should address equity, and excise duties should be used for correcting negative externalities. 

They also highlighted that Bangladesh’s current system tends to mix these functions, reducing overall efficiency and effectiveness.

Industry perspectives were also presented, with concerns raised over rising tax incidence on compliant businesses. A representative from Coca-Cola Bangladesh noted that total tax incidence in the sector has increased significantly in recent years, affecting investment expectations and operational stability.

The company called for a broader expansion of the tax base to include non-compliant entities rather than increasing the burden on already compliant firms.

The dialogue concluded with a broad consensus on the urgency of structural reform in Bangladesh’s VAT and supplementary duty framework, stronger institutional capacity at the NBR, improved data transparency, and a more coordinated approach to tax policy design to support sustainable revenue mobilization and economic competitiveness.