Revenue shortfall hits TK43,000cr as economic slowdown, VAT slump bite

NBR Chairman Ahsan Habib convened a meeting with field-level officials on Wednesday to review the collection deficit. Efforts to reach him via WhatsApp for formal comment were unsuccessful prior to publication.

A senior NBR official, speaking on condition of anonymity, attributed the drop in VAT collection partly to the recent transition to quarterly returns. The official noted that collection from large corporate taxpayers had missed expectations and that slow execution of development projects had further dragged down VAT receipts, though revenue performance is expected to improve in the coming months.

Economic slowdown, weak enforcement weigh on receipts

Fazlul Hoque, administrator of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), agreed that broader economic headwinds were hampering performance.

“Sales are down, private investment is stagnant, and Annual Development Programme (ADP) implementation is extremely low. Money circulation in the economy has tightened, while imports have failed to gain momentum,” Hoque said, adding that the shift from monthly to quarterly VAT filings had also disrupted short-term collection.

However, Zahid Hussain disputed the argument that the move to quarterly VAT filings fully explained the quarterly gap, pointing out that payment deadlines for the July-September window had already elapsed.

Record-low ADP implementation dragging down withholding taxes

Slow public spending has further worsened the shortfall. A significant portion of tax receipts is collected via tax and VAT withheld at source during economic transactions linked to state-funded projects.

Data from the Planning Ministry shows that ADP implementation stood at just 3.89% in July-September, the lowest on record for the first quarter. This compares to 5.09% in FY26, 4.75% in FY25, 7.50% in FY24, and 8.55% in FY23.

The government’s overall revenue target for FY27 is set at Tk6.04 lakh crore, a steep 45% increase over actual collections in FY26, when revenues grew by 12%. Experts had previously warned that the baseline budget targets were overly ambitious.

“During the budget formulation, it was pointed out that these targets were unachievable under current conditions. We are now seeing those warnings bear out,” Zahid Hussain stated.

Income tax and import duties rise, but VAT drags down total

Despite the broader contraction, NBR data revealed that income tax collection grew by 16% year-on-year in the first quarter, while import tax receipts rose by over 7%. However, the dramatic decline in VAT receipts offset these gains.

Analysts caution that the surge in income tax collection may prove short-lived, as early filings were driven by government incentives urging taxpayers to submit returns before September.

Bleak near-term outlook

Economists see little prospect of a rapid turnaround over the coming months, pointing to stagnant investment, sluggish job creation, and an absence of major structural tax reforms.

Fahmida Khatun, distinguished fellow at the Centre for Policy Dialogue (CPD), expressed skepticism over a near-term recovery.

“Investment remains static and employment generation is stalled. Without major administrative reforms in revenue collection, a substantial rebound in receipts over the coming months remains unlikely,” she said.

Economist Zahid Hussain also voiced concern over softening remittance inflows, which had previously averaged around $3 billion monthly. He warned that rising geopolitical tensions in the Middle East could further cloud the remittance outlook.

The revenue crisis unfolds against a backdrop of downgraded growth projections. Recent revisions by the Asian Development Bank (ADB) and the International Monetary Fund (IMF) place Bangladesh’s projected economic growth at 3.2%, the lowest rate in 38 years. Meanwhile, the IMF’s World Economic Outlook forecasts inflation at 10.9%, signaling continued pressure on household budgets and business activity.