Tax Expenditure Reporting in Developing Countries: A Case Study on Bangladesh
Keywords:
Tax Expenditure, Revenue Forgone Method, Developing Economies, Bangladesh, Fiscal PolicyAbstract
Tax expenditures are government policy instruments that provide preferential tax incentives and exemptions instead of direct budget support. They are frequently applied in order to prioritise particular sectors and to attract foreign investment. Interestingly, most of these tax expenditures are applied opaquely in developing or emerging economies, mainly due to the unavailability of tax expenditure data. This study proposes a customised model in order to address this gap and recommends that Bangladesh uses the revenue forgone (RF) approach to tax expenditure estimation based on Gross Domestic Product (GDP). Developing economies like Bangladesh can replicate this method where gaining access to information is challenging. Using the recommended method of computation, we find that Bangladesh’s tax expenditure for the 2018/2019 financial year is 2.28 per cent of its GDP value. Finally, we make a few recommendations with regard to the reform of the tax expenditure policies of emerging economies like Bangladesh.
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