Why Bangladesh Is Splitting the NBR:

For decades, the National Board of Revenue (NBR) has been the primary institution tasked with crafting and enforcing tax policy in Bangladesh. It has operated under the Ministry of Finance as a central organ of the country’s revenue machinery. However, in a bold reform move, the interim government has recently announced the dissolution of the NBR and the creation of two distinct divisions: the Revenue Policy Division and the Revenue Management Division.

This unprecedented structural change marks a fundamental rethinking of how Bangladesh governs its fiscal system. At TRW Law Firm, we recognize this development as a potentially transformative milestone—one that, if executed with integrity and foresight, could lay the foundation for a more transparent, accountable, and investor-friendly tax system.

I. The Status Quo: Why Reform Was Necessary

Historical Context

The National Board of Revenue, established over half a century ago, has long borne the dual responsibilities of tax policy formulation and tax administration. On paper, this may seem efficient. In reality, however, it has entrenched systemic flaws. Bangladesh’s tax-to-GDP ratio—currently at 7.4%—is among the lowest in Asia. The global average stands at 16.6%, with countries like Malaysia at 11.6% and India at 10.8%.

These numbers matter. Bangladesh cannot sustainably fund its development goals—ranging from infrastructure expansion and healthcare to climate resilience—without a healthier tax system.

Core Issues with the NBR Structure

1. Conflict of Interest

Perhaps the most glaring problem is the conflict of interest inherent in combining tax policy-making and enforcement within the same entity. The same officials setting tax rules are also in charge of collection and enforcement. This arrangement has often led to compromises in tax policies—driven more by the imperatives of short-term collection than by principles of fairness, long-term planning, or economic growth.

There have also been widespread reports of collusion between collectors and defaulters, enabling tax evasion. When enforcers become gatekeepers without oversight, systemic abuse follows.

2. Lack of Accountability in Tax Collection

NBR officials have operated under a vague and often unquantified performance framework. There is no systematic process in place to assess:

• Collection efficiency
• Integrity in enforcement
• Service delivery to taxpayers

Moreover, promotions and career advancements have not been linked with measurable, merit-based performance indicators. This has fostered a culture of bureaucratic inertia and rent-seeking.

3. Inefficiency in Revenue Mobilization

Despite the introduction of digitized tax filing systems, tax net expansion remains minimal. Direct taxation continues to stagnate, with indirect taxes (such as VAT and customs duties) disproportionately burdening consumers and low-income citizens. The corporate tax base remains alarmingly narrow, and informal sector contributions are virtually non-existent.

4. Bureaucratic Overlap and Governance Failures

Currently, the head of the Internal Resources Division (IRD) simultaneously serves as the Chairman of the NBR. This bureaucratic overlap creates confusion and dilutes accountability. Policy design gets entangled with administrative hurdles, slowing the implementation of tax reforms.

5. Weak Investment Facilitation

The NBR has not sufficiently engaged with the private sector. Many of its policies have been drafted in isolation, lacking consultation or impact analysis. This has led to unpredictability in tax rules, discouraging long-term investment. Bangladesh’s global rankings in ease of doing business and tax compliance have suffered accordingly.

6. Morale Crisis Within the Bureaucracy

Uncertainty around the reform process has understandably created anxiety among long-serving tax and customs officers. The fear of losing relevance or being marginalized in the new structure has caused friction within the ranks, potentially threatening the success of the transition.

II. The Proposed Restructuring: What Will Change?

The government’s decision to split the NBR is based on global best practices, observed in tax administrations in countries like the United Kingdom, Australia, Canada, and South Korea, where policy formulation and tax administration are separated.

New Institutional Framework

This realignment aims to establish a clearer line of accountability. Those who draft policies will no longer be incentivized to distort them for enforcement targets. Those who collect taxes will be held to performance standards based on data and audit transparency.

III. Legal Implications and Frameworks

At TRW Law Firm, we expect the restructuring process to necessitate several legal reforms and institutional amendments, particularly to the following:

1. National Board of Revenue Act

This foundational law must be repealed or extensively revised. Provisions creating the NBR and defining its dual mandate must be replaced with two standalone legal frameworks for the new divisions.

2. Income Tax Ordinance, 1984

Significant amendments will be required to align enforcement functions with the Revenue Management Division, while the responsibility of framing tax exemptions, incentives, and structural rates will shift to the Policy Division.

3. Value Added Tax and Supplementary Duty Act, 2012

The interpretation, exemption, and administration of VAT will now involve both divisions. Legal clarity is needed to demarcate authority and avoid overlap.

4. The Rules of Business of the Government of Bangladesh

These rules will have to be amended to reflect the administrative chain of command in the Ministry of Finance vis-à-vis the two new divisions.

5. Institutional MoUs and Inter-Agency Protocols

Clear Memoranda of Understanding (MoUs) must be crafted between the Policy and Management divisions, delineating:

• Data sharing
• Consultations on enforcement impacts
• Fiscal projections and planning

IV. How the New Structure Will Improve Bangladesh’s Tax System

1. Better Policy-Making Based on Data

A dedicated Policy Division will have the capacity to invest in tax analytics, economic modeling, and international benchmarking. This data-driven approach will result in evidence-based tax laws instead of reactive or anecdotal policymaking.

2. Separation Reduces Corruption and Collusion

When tax collectors do not draft the rules, the scope for manipulating them in collusion with defaulters diminishes. Oversight becomes easier. Policy outcomes can be audited independently of enforcement performance.

3. Broader Tax Base

With clearer enforcement priorities, the Management Division can focus on:

• Widening the tax net
• Leveraging technology to detect non-filers
• Integrating informal businesses
• Auditing high-income earners with better targeting

This will reduce over-reliance on regressive indirect taxes and shift toward equitable direct taxation.

4. Greater Confidence Among Investors

Predictable tax regimes improve the investment climate. Businesses can plan better, model profitability accurately, and reduce litigation. Investor complaints about “arbitrary assessments” or “unclear exemption criteria” may decline.

5. Cultural Shift Within Bureaucracy

New Key Performance Indicators (KPIs), tied to collection efficiency, taxpayer service satisfaction, and integrity scores, can revolutionize bureaucratic behavior. Officers can be rewarded or reassigned based on objective metrics—not patronage or tenure.

V. Potential Risks and How They Should Be Managed

While the reform is well-conceived, implementation remains the key. At TRW Law Firm, we identify several potential pitfalls and recommend legal safeguards to prevent them:

VI. Recommendations from TRW Law Firm

As one of the leading legal and tax advisory firms in Bangladesh, TRW Law Firm recommends the following to ensure success of this reform:

• Create a Tax Policy Advisory Council with representation from the private sector, academia, legal community, and international organizations.
• Ensure transparency in recruitment of leadership for both divisions, with merit-based and integrity-driven selections.
• Develop an Integrated Taxpayer Portal that combines information from both divisions, ensuring that the taxpayer experience remains seamless.
• Legal codification of performance metrics for enforcement officers, with annual public reporting.
• Mandatory annual audits of both divisions by the Comptroller and Auditor General (CAG), with findings published online.

VII. Conclusion: A New Dawn for Fiscal Governance in Bangladesh

The dissolution of the NBR is not merely a bureaucratic shuffle—it is a long-overdue structural correction. By splitting tax policy-making from enforcement, Bangladesh can finally move toward a modern, transparent, and growth-orientedrevenue framework.

At TRW Law Firm, we believe this reform, if executed with care and integrity, will empower Bangladesh to build a fairer tax regime, attract greater investment, and provide better public services. The path to increasing the tax-to-GDP ratio begins not with aggressive enforcement, but with smart policy, clean governance, and institutional accountability.

We remain committed to supporting clients—whether domestic enterprises, MNCs, or development partners—navigate the implications of this reform. As always, our legal team is ready to advise on compliance, tax planning, and strategic engagements with the new tax authorities.

For advisory support, tax dispute resolution, and institutional engagement with the new Revenue Policy or Management Divisions, reach out to our expert counsel.

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