Taxation Challenges For Bangladesh: Sams Uddin Ahmed
Taxation Challenges For Bangladesh: Sams Uddin Ahmed
Abstract
The purpose of this article is to identify the major taxation challenges for Bangladesh. It is observed that
Bangladesh, being the member of developing country club, is making progress in mobilizing internal resources,
but it has some areas for further improvements. Bangladesh has graduated to the middle income earner
country, therefore, it is now on its own in terms of collecting the revenue to finance development projects
for providing public goods. Findings suggest increasing capacity of tax administrations and taking effective
initiatives to reform the taxation system in an environment where taxation reforms are not politically
influenced.
Key Words : Taxation, Challenges, Tax Administration, Tax Policy, Reform, Bangladesh.
Part-I : Introduction
Taxation remains vital to fund the public goods and for the growth of the economy of a country. Taxation is
the main source of government revenue. Taxation is also important to shape the relationship between the
state and the citizens (Carnahan, 2015). It is even argued by some that the state taxpayer relationship is a
fiduciary one (Ahmed, 2016).While developed countries have been able to mobilize much needed revenue
for the welfare of the citizens and spend for development works, developing countries like Bangladesh are
not making remarkable progress in the field. Besley and Persson (2013) state, “In the process of development,
states not only increase the levels of taxation, but also undergo pronounced changes in patterns of taxation,
with increasing emphasis on broader tax bases, i.e., with fewer exemptions. Some taxes — notably trade taxes
— tend to diminish in importance. Thus, in the developed world taxes on income and value added do the
heavy lifting in raising sufficient revenue to support the productive and redistributive functions of the state.”
It is observed that revenue collection have been growing in most of the low- and lower-middle-income
countries over the last decade, both in absolute figures and as a percentage of the GDP. But the growth
remains inadequate to meet up the financing needs of the SDGs, estimated at USD 2.5 trillion per year for
developing countries alone, according to UNCTAD figures. Moreover, developing countries must face the
decline of financial flows from international public and private sources by 12 % between 2013 and 2016
The tax to GDP ratio in the developed countries speaks for the fact that taxation is sine qua non for
development. The developing countries very often struggle to finance the public goods and development
works because of the lack of finance.Taxation, no doubt, provides the main source of finance.The tax to GDP
ratio in developing countries remain low.That means the developing countries cannot mobilize enough internal
resource to spend for the public goods.The OECD states,‘Increased domestic resource mobilisation is widely
accepted as crucial for countries to successfully meet the challenges of development and achieve higher
living standards for their people. Additional tax revenues enable governments to simultaneously strengthen
infrastructure development, enhance the quality of education and promote social cohesion.’ Regarding the
internal resource mobilization in developing countries, particularly in Asian countries, the OECD (2017) states,
‘Tax-to-GDP ratios continue to vary widely across Asian countries. While some countries have experienced
a decline in tax revenues in recent years, tax-to-GDP ratios have increased in most countries since 2000. In
spite of these increases, further efforts are needed to increase tax revenues in developing countries in the
region to support domestic resource mobilisation.’ However, for the economic development of a country
tax to GDP ratio should touch the minimum threshold. According to the IMF the threshold should be around
15% marks. Smith (2018) states, ‘Both the IMF and OECD clearly believe that the tax-to-GDP ratio matters. It
is a straightforward measurement, perhaps crude as a result, but it can give a clear indication of the direction
of travel of tax policy and administration in any given country, which can then be used to measure against
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