Raising Personal Income Tax to Boost Economic Growth

January 30, 2024

By  Bazlul H. Khondker, Ishrat Jahan Ishita, Md. Salay Mostofa

The Importance Of Personal Income Tax For Driving Economic Growth

Personal income tax has proven to be an important tool in raising tax revenue and supporting the growth of emerging economies. As countries develop, they increase their general tax revenue share as a proportion of GDP, but they also increasingly utilise personal income tax to raise revenue. Bangladesh raised tax revenue at a rate of only 8.4 % of GDP in FY2021-2022 – much lower than other comparable countries – and only a third of this tax revenue was raised through direct (corporate and personal) taxation – again lower than that of other similar countries (Table 1).  In its 8th Five Year Plan, the Bangladesh national government committed to increasing tax revenue to 12.3% of GDP by 2025.

PRI Study Centre On Domestic Resource Mobilisation Has Conducted New Modelling To Estimate The Effects Of Increasing Revenue From Personal Income Tax

PRI Study Centre on Domestic Resource Mobilisation have carried out new taxation modelling to estimate the impacts of changes to the personal income tax system. This uses data on Bangladesh’s economy to simulate the impacts of possible revenue and expenditure reforms. The modelling provides estimates for resulting changes in economic variables including tax revenue, GDP, household consumption and income distribution.

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Bazlul H. Khondker

Bazlul Haque Khondker is a Director at Policy Research Institute of Bangladesh. He is also a professor at the Department of Economics, University of Dhaka and the Chairman of the South Asian Network on Economic Modeling (SANEM). He holds a PhD in Economics from the University of Warwick, UK. His areas of expertise include social policy, development economics and economic modeling.

Ishrat Jahan Ishita

Ishrat Jahan Ishita is working as a Research Associate at Policy Research Institute of Bangladesh (PRI). Prior to joining PRI, she worked as a Research Associate at YY Ventures.She earned her bachelor’s degree in Economics from North South University and is currently pursuing her master’s at the same institution.

Md. Salay Mostofa

Md. Salay Mostofa is working as a Senior Research Associate in Policy Research Institute of Bangladesh (PRI). Prior to joining PRI, he worked as a Programme Associate at the Centre for Policy Dialogue (CPD) and as a Research Assistant at Research and Policy Integration for Development (RAPID).His research interests lie in the area of Labour Economics, International Economics, Macroeconomic Policy and Fiscal Framework, and Econometric Modeling and Empirical Analysis. He has completed BSS and MSS in Economics from Bangladesh University of Professionals.