[🇧🇩] Monitoring Bangladesh's Economy

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Bangladesh’s shallow capital market

A stock market can rise without helping businesses raise a single additional taka.

www.thedailystar.net

Bangladesh’s shallow capital market

Mamun Rashid

A stock market can rise without helping businesses raise a single additional taka. In the first half of this year, the Dhaka Stock Exchange’s benchmark index rose nearly 19 percent and average daily turnover increased by more than half. By October 17, the DSEX had fallen to around 5,433 points, while turnover dropped to Tk 317 crore, its lowest level in more than nine months. The deeper question is why price movements have not translated into stronger investment financing.

At end-June, market capitalisation stood at 11.42 percent of GDP, compared with 10.82 percent a year earlier. Rising share prices can lift market value without bringing new companies to market or generating fresh capital. A deeper market should be judged by new listings, fresh equity, tradable securities and liquidity. Stock-market size is not the same as the capacity to fund growth across the economy.

That is what shallow water looks like. Bangladesh has savings, but too few channels to direct long-term capital towards productive enterprises. Businesses remain heavily dependent on bank loans. Corporate bonds could finance expansion without adding to bank-credit concentration. But a functioning bond market needs credible issuers, transparent credit assessment, diverse maturities and reliable secondary trading, not merely securities listed on an exchange.

The Bangladesh Bank publishes a daily secondary-market yield curve for government treasury bonds. Trading, price discovery and market-making must deepen. A benchmark is useful, but cannot substitute for a liquid market. Without reliable reference rates and investors able to exit positions, corporate bond pricing will remain difficult and issuance costly.

Retirement savings offer another opportunity. Industry estimates suggest provident, gratuity and pension funds may exceed $15 billion, though data are limited. Much of these savings is held in bank deposits and government securities. A stronger framework for employer-sponsored funds, with prudent investment rules, independent trustees, disclosure and professional management, could diversify investment options and support long-term finance. The objective must be to protect employees’ retirement security, not direct their savings into equities simply to support share prices.

The gap is between recognising problems and implementing trusted changes. The Direct Listing of Securities Rules, 2026, gazetted on October 18, creates additional routes for companies to enter the market. Yet direct listing may broaden public ownership without raising fresh capital for the company. To reduce dependence on bank borrowing, policy must also support new equity issuance, rights offerings and corporate bond financing.

Faster approvals cannot restore confidence. Financial statements must be reliable; related-party transactions and ownership structures transparent; disclosures timely; and manipulation met with consequences. Admitting more securities without enforcing standards could increase investor risk rather than productive finance.

Responsibility extends beyond the securities regulator. The National Board of Revenue should ensure tax treatment makes listing worthwhile relative to compliance costs. The Bangladesh Bank and the Ministry of Finance should improve government-securities liquidity and market access. The Finance Division should establish a sound framework for retirement funds, while insurers and mutual funds need well-governed products to attract long-term investors.

The most useful step is accountability. A public scoreboard should identify each accepted reform, the responsible institution, its deadline, progress and measurable outcome. Updated quarterly, it would show whether equity raising, bond trading and investor protection had improved.

Shallow water does not always sink a boat; it leaves it stranded, often without warning. Bangladesh needs more than another rally. It needs deeper markets that convert savings into productive investment, give businesses alternatives to bank loans and offer investors a market they can trust. The test of reform is not what is announced, but what changes.

The writer is an economic analyst​

 

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Bangladesh's revenue sector: ailment, cause and cure

Effective treatment of an ailment begins with an accurate diagnosis. If the cause of an illness is not properly diagnosed, even repeated treatment may fail to cure. Bangladesh’s revenue sector faces a similar problem. For decades, reforms have focused on laws, registration, tax rates, exempti

thefinancialexpress.com.bd

Bangladesh's revenue sector: ailment, cause and cure

Effective treatment of an ailment begins with an accurate diagnosis. If the cause of an illness is not properly diagnosed, even repeated treatment may fail to cure. Bangladesh’s revenue sector faces a similar problem. For decades, reforms have focused on laws, registration, tax rates, exemption, organisational restructuring and automation, yet revenue performance remains miserably weak. After 55 years of independence and 35 years of introduction of Value Added Tax (VAT), Bangladesh’s tax-to-GDP ratio is only 6.7 per cent—lowest globally, compared with approximately 12 per cent in India, 16 per cent in Pakistan, 17 per cent in Sri Lanka, 19 per cent in Nepal, average 19 per cent in Asia-Pacific countries, 30-35 per cent in the developed countries and highest 45 per cent in Demnark.

Tax Evasion is the core problem: Widespread tax evasion remains the central challenge at its core. At the import stage, revenue is lost mainly through practices such as misclassification and undervaluation. Goods may be declared under tariff headings carrying lower duties and taxes, while their value may also be understated.

At the domestic level, however, a particularly important method of evading both VAT and income tax is the concealment of sales. VAT liability depends heavily on taxable sales. If actual sales are understated, VAT payable is reduced. Sales also generate business income. When part of the sales revenue is kept outside the accounts, reported income may fall, reducing income tax liability as well. Thus, concealing a single stream of sales can affect two major sources of government revenue—VAT and income tax.

How Sales Are Concealed: Sales can disappear from formal accounts in several ways. A business may receive sale proceeds in cash and make purchase in cash without recording transaction. Goods may be sold without the prescribed VAT invoice. An invoice may be issued but excluded from the final accounts. False invoice may be created, informal slip or delivery chalan may replace proper invoices, or one invoice may be reused for multiple movements of goods.

One person’s sale is another person’s purchase. If both sides are properly documented, a transaction trail emerges. If the transaction is concealed, both VAT and income tax can be affected. This is why invoice is most crucial in revenue management. It is the primary documentary link between a purchase and a sale. When invoices accurately represent transactions, the government obtains a far stronger basis for determining taxable turnover and income.

Why Invoices Matter: The National Board of Revenue (NBR) collects approximately 86 per cent of the government’s total revenue. Of the NBR revenue, around 38 per cent comes from domestic VAT, supplementary duty and excise duty, about 35 per cent from income tax, and roughly 27 per cent from import-stage customs duty, regulatory duty, VAT and supplementary duty.

Domestic VAT and related taxes together with income tax therefore account for approximately 73 per cent of NBR revenue. For this large segment of revenue, reliable information about business transactions is critically important. Where purchases and sales are concealed, unreliable invoicing creates a major information gap and weakens registration, return filing and audit.

Limits of Conventional Reform: Bangladesh has repeatedly considered reforms such as integrating TIN and BIN, reducing exemptions, registering previously unregistered businesses, broadening the tax base, introducing uniform rates, ensuring return submission and separating tax policy from tax administration. Many of these proposals may have merit. But one question should be asked: does it reveal how much a taxpayer actually sells?

A registered business can still conceal sales. A taxpayer can file every return on time while reporting inaccurate figures. A uniform VAT rate can simplify administration but cannot reveal an unrecorded transaction. Institutional restructuring can improve governance, but it does not automatically identify hidden sales. The missing link is thus transaction information, and the invoice is the document that connects the transaction to the tax system.

Invoice-Centred Reform: Revenue reform should follow the transaction. If a manufacturer sells to a wholesaler, the manufacturer records a sale and the wholesaler records a purchase. When the wholesaler sells to a retailer, another matching pair is created. If every transaction generates an authentic electronic invoice, the seller’s information can be matched with the buyer’s information. Discrepancies then become visible, allowing enforcement to be more targeted.

An estimated 43 per cent of economic activity currently remains outside the VAT net. Significant taxable transactions also escaping VAT within the formal economy. If purchases and sales were systematically invoiced and recorded, VAT collection could potentially increase substantially. Income tax administration would also benefit because verified transaction information would provide a more credible picture of business turnover.

National Invoice Automation System: Bangladesh should therefore build a comprehensive National Invoice Automation System through which invoices for purchases and sales can be generated, issued, verified and securely recorded in a common format. The system must work for everyone, from a small neighbourhood shop to a large industrial enterprise. Businesses should be able to issue invoices through computers, point-of-sale devices, smartphones and other authorised equipment. User-friendly software is essential because compliance will not improve if ordinary businesses find the system difficult or expensive.

It should gradually replace fragmented transaction documents with a standardised, verifiable invoice record. Implementation should combine technology with education, technical support and incentives. Consumers should also be encouraged to demand authentic invoices.

Bangladesh has domestic technological capacity for such infrastructure. Local software companies, including members of the Bangladesh Association of Software and Information Services (BASIS), can contribute alongside tax professionals, businesses and government agencies.

Investing in Revenue Capacity: Bangladesh’s revenue collection cost is also comparatively low. For collecting Tk. 100 revenue in Bangladesh, the cost is about 21 paisa, compared with 60 paisa in India, 63 paisa in Pakistan, 71 paisa in Thailand and Tk 1.70 in Japan. Spending on technology, skilled personnel, data infrastructure and taxpayer services can generate greater revenue while improving compliance. Investment in revenue capacity development is an urgent necessity.

The Way Forward: The fundamental weakness of Bangladesh’s revenue administration is ultimately an information gap. The government does not have sufficiently complete and reliable information about purchases and sales across the economy. Without that information, tax liabilities can be understated regardless of how many registrations, returns or administrative reforms exist.

Invoice automation is therefore not merely an IT project. It should become a central pillar of revenue reform. Every genuine purchase and sale should create a verifiable record, enabling transactions to be matched and irregularities to be identified.

Other reforms will still be necessary, but they should support this central objective rather than distract from it. Bangladesh already possesses financial resources, human capital and technological expertise. What is required is a clear policy decision and determined implementation. After decades of treating the symptoms in our revenue health, it is time to address the disease at its root cause.

Dr Md Abdur Rouf is Chairman, Bangladesh VAT Professionals Forum and International VAT Training Institute​