AHSAN HABIB

The amount of money Bangladesh collects in government revenue each year relative to the size of its economy is among the lowest in the world, ranking just above war-torn Yemen and Sudan, according to data from the International Monetary Fund (IMF).

The shortfall leaves the government with less money to invest in health, education, infrastructure and other public services, while limiting its ability to respond to economic shocks.

This measure, known as the revenue-to-GDP ratio, stood at 8.34 percent in 2024, the lowest among Asian countries and many of Bangladesh’s peer economies.

There are at least half a dozen reasons why the government’s revenue compared with the size of the economy has remained low for such a long time.

According to the London-based International Growth Centre (IGC), Bangladeshis have weak trust in government spending because of high levels of corruption, which reduces willingness to pay taxes. Tax compliance also depends on the quality of public services people receive.

Meanwhile, economists say the low revenue-to-GDP ratio is also the result of a narrow tax base, the dominance of the hard-to-tax informal sector, generous tax exemptions and holidays, weak compliance and enforcement, and heavy reliance on indirect taxes instead of broad-based income and property taxes.

“Due to the country’s low revenue-to-GDP ratio, the government’s fiscal space remained limited over the years. It had negative consequences for development,” said Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID).

As an example, the economist pointed to long-standing underinvestment in the health and education sectors.

He said Bangladesh’s spending on health and education is among the lowest in the world. As a result, the country has not achieved the expected growth in human capital. Other infrastructure projects that should have been developed also failed to materialise.

The RAPID chairman said the low revenue-to-GDP ratio supported economic growth up to a certain point because it benefited the private sector.

“With lower tax collection, people paid less tax and retained greater purchasing power, helping private sector growth,” he added.

HOW BANGLADESH COMPARES WITH ITS PEERS

In neighbouring India, the revenue-to-GDP ratio stands at 20.48 percent. It is at 12.67 percent in Pakistan and 13.68 percent in Sri Lanka. In Bhutan, government revenue amounts to 26.97 percent of GDP.

Among countries graduating from the least developed country (LDC) club, data for Lao PDR and Nepal were unavailable. Even so, Bangladesh ranked lowest within the group.

The IMF data showed that the Solomon Islands recorded a revenue-to-GDP ratio of 32.7 percent, while the figure stood at 14.58 percent in Cambodia and 20.13 percent in Senegal.

Internationally, a tax-to-GDP ratio of 15 percent is often regarded as a minimum benchmark. Falling below that level can hamper economic growth and development.

Below this threshold, government effectiveness, financial development and economic growth tend to stagnate. Yet more than 70 developing economies still collect less than 15 percent of GDP in taxes, constraining development and leaving governments vulnerable to economic shocks.