Bangladesh's tax-to-GDP ratio, one of the lowest globally, underscores the urgent need for comprehensive revenue policy reforms, according to a member of a government panel working on recommending relevant changes.

This will bolster domestic revenue collection and reduce dependence on external borrowing, said the member, Muhammad Abdul Mazid, also a former chairman of the National Board of Revenue (NBR).

He recently shared insights on this critical issue in an interview with The Daily Star.

Mazid highlighted the necessity of separating tax policy formulation from tax administration, a move also advocated by International Monetary Fund (IMF) under its $4.7 billion loan programme for Bangladesh.

"When the NBR is tasked with tax collection targets, its policy measures often prioritise meeting those targets, sometimes at the expense of equitable taxation and sectoral growth," he said.

The advisory panel's mandate spans various areas, including restructuring legal and regulatory frameworks, broadening the tax base, digitalising the tax administration, and combating corruption.

Other priorities include improving taxpayer services and dispute resolution mechanisms, and internal controls, while curbing aggressive tax evasion practices.

Mazid also emphasised on the need to reduce the discretionary powers of tax officials and eliminate provisions such as the minimum tax for individuals and turnover-based taxes for firms.

These measures aim to foster fairness and transparency within the tax system, he said. He shed light on key hurdles in revenue administration, including centralised structures, limited managerial capacity, and inadequate enforcement mechanisms.

Mazid noted that these inefficiencies discourage compliance, particularly among honest taxpayers, and create an uneven playing field between formal and informal sectors.

"Tax disputes often arise due to arbitrary assessments by tax officials," he added.

To address this, he said the panel recommends establishing independent tax tribunals with judges from the judiciary to ensure impartiality in dispute resolution.

The introduction of a tax ombudsman is also under consideration to provide aggrieved taxpayers with an alternative avenue for redress, he said.

Building taxpayer confidence is crucial for improving compliance, Mazid said.

"When taxpayers see public funds being used effectively and corruption minimised, they are more likely to fulfil their tax obligations," he explained.

He also criticised contradictory fiscal policies that allow lawmakers to enjoy tax-free benefits, undermining public trust in the system.

The advisory panel will call for reforms to align revenue administration practices with modern business activities and counter sophisticated tax evasion schemes, said Mazid.

This includes strengthening human resource capacity, revising disciplinary rules for public servants, and ensuring strategic financial management within revenue departments, he said.

The panel is actively engaging with stakeholders, including businesses, tax officials, civil society, and fiscal experts, to finalise its recommendations. It has already submitted a preliminary report to the government outlining reform proposals, he said.

Mazid stressed that revenue reforms must strike a balance between achieving revenue objectives and fostering an investment-friendly environment.

"Good tax policies support equitable, inclusive, and sustainable growth while minimising administrative burdens," he said.