The government is consistently failing to meet its tax collection targets. In 2022-23, its target fell short by Tk 44,728 crore. This phenomenon has been going on for the last 11 consecutive fiscal years. Clearly, our existing taxation system is not efficient enough, so something needs to change and change fast.

No doubt, the last three years have been difficult economy-wise. The fallout from the pandemic and the war in Ukraine caused shocks in the global economy, the ripples of which were felt strongly in Bangladesh.

Bangladesh's tax-GDP ratio was 7.5 percent in 2021-22, the lowest in South Asia, and one of the lowest in the world. Given the rate at which our economy has grown, such an abysmally low ratio is unacceptable.

But the ratio is not much different from the previous years too. It is safe to assume that the core issues that are hindering tax collection are not being addressed appropriately by the government.

Bangladesh is reportedly losing $361 million a year due to multinational companies shifting profit to tax havens and $26 million a year due to individuals evading tax. This amount is equal to one-third of the country's health budget, so the implications are not negligible.

For most countries in the world, the most important source of government revenue is income tax. However, in Bangladesh among more than 8 million taxpayer's identification number holders, 2.4 million submit returns.

Owing to individuals' reluctance to pay income taxes coupled with an ambitious budget, the government might opt for more indirect taxes like increased VAT and import duty. A further increase in indirect tax is not ideal for Bangladesh as it is imposed equally on all income groups from a day labourer to a millionaire.

To address these issues, experts have long been suggesting an overhaul of our taxation system. Malpractice related to tax payments and collection takes place at several levels. There are instances of businesses either not collecting VAT to keep product prices low or collecting the VAT but not reporting it to the government.

There is room for tax collection agents to collude with taxpayers to not collect tax following prescribed procedures. There is also a considerable portion of the economy that is still outside the formal financial system and there is no record of their income.

The media as well as think-tanks published several analyses explaining why and how the system should be reformed. To this end, several recommendations have been made, such as expansion of the tax net, modernisation, and capacity-building of the National Board of Revenue (NBR), crackdown on tax evasion, further rationalisation of tax rates, reducing dependency on indirect taxes, and finding new sources of tax revenue.

There is a crying need to stop malpractices by tax collection agents and taxpayers as well. Anti-collusion policies should be put in place and enforced strongly. Reform is also crucial to meet the conditionalities set by the International Monetary Fund for the $4.7 billion it is lending to Bangladesh. There is no point in delaying the reform that must happen if we want to improve our revenue growth and domestic resource mobilisation.

Since the government has set an ambitious tax collection target of Tk 430,000 crore for the NBR for FY2024, it must introduce systematic changes in our taxation process as soon as possible to achieve the goal. The institutional capacity of the NBR should be enhanced and there can be no margin of error in terms of transparency, diligence and enforcement of best practices.

The author is an economic analyst