Bangladesh Faces Annual Tax Loss of $355 Million Due to Tax Evasion

Bangladesh is losing an alarming $355 million in tax revenues each year due to corporate profit shifting and tax evasion by individuals, particularly through the use of offshore tax havens. According to the State of Tax Justice 2024 report, corporations account for the largest share of the losses, shifting $335.9 million abroad, while $19.1 million is lost to individuals evading taxes by holding wealth in foreign properties.

This loss represents 21.4% of Bangladesh's annual health expenditures.

The report also highlights an alarming $492 billion in tax losses each year resulting from income underreporting and tax haven use by multinational corporations and rich individuals. Almost half of these losses are facilitated by eight countries: Australia, Canada, Israel, Japan, New Zealand, South Korea, the UK, and the US.

Bangladesh's Struggling Revenue System and Moody's Downgrade

Widespreadtax evasion and irregularitieshavecontributedtoBangladesh's fiscalproblems.Bangladeshtriedto reducecorporate tax rates to attract investment,butitscorporatemultinationalsshiftedall their potentialprofits abroad--arecordof$1.3 billionlastyearalone.

This tax revenue shortfall coincides with Bangladesh's broader economic struggles, as highlighted by a recent downgrade by Moody's. The downgraderesultedfromincreasingpolitical risks,poorgrowthoutlooks, and aworseninglaw and order situation. While the immediate impact on the economy may be limited, experts warn that it could lead to higher borrowing costs and more stringent credit reviews for businesses, affecting both local and foreign investments.

The downgrade is a big setback for Bangladesh in consolidating its steps to stabilise the economy and attract foreign investment. Experts feared that the downgrade could increase the cost of doing business significantly, particularly with regard to international trade, and further difficulties in accessing financing. Confirmation charges for letters of credit may increase, and the overall climate for FDI will suffer due to the lack of political stability perceived.

Although the interim government has initiated reforms, the absence of a clear election roadmap and the ongoing political uncertainty raise concerns among international investors. Until these issues are addressed, experts predict a continued struggle to boost investment and stabilise the economy.