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PROJECT INFORMATION DOCUMENT (PID) 
CONCEPT STAGE 
Report No.:  AB2491 
Project Name 
Bangladesh Tax Administration Modernization Project 
Region 
SOUTH ASIA 
Sector 
Other industry (100%) 
Project ID 
P083781 
Borrower(s) 
GOVERNMENT OF BANGLADESH 
Implementing Agency 
National Board of Revenue 
Environment Category 
[
]
A
[
]
B
[X] C   [ ] FI   [ ] TBD (to be determined) 
Date PID Prepared 
July 24, 2006 
Estimated Date of 
Appraisal Authorization 
February 15, 2007 
Estimated Date of Board 
Approval 
June 15, 2007 
I.   
Key development issues and rationale for Bank involvement 
 
Bangladesh has the lowest tax to GDP ratio in the South Asia region and one of the lowest 
in the world.
 
The Bangladesh National Board of Revenue (NBR), the agency responsible for most 
revenue collection, needs a major institutional overhaul to enable it to mobilize revenue effectively and 
efficiently, while supporting the development of an improved business climate and public sector 
governance. The Investment Climate survey (2003) pointed to the NBR as the public institution that 
imposes the highest level of informal payments on the private sector. 
 
Central Government Tax Revenue in South Asian Countries, 2003 
(as percent of GDP) 
 
Bangladesh     Bhutan       India           Nepal         Pakistan      Sri Lanka 
Tax 
8.1        
8.7  
      9.1 
        9.4 
10.9 
      13.2 
 
Income taxes 
1.3       
    4.6 
      3.5 
        1.7  
  3.0 
        2.2 
 
VAT or sales tax 
3.4        
    1.6 
       ... 
        3.0 
  4.1 
        5.5 
 
Excise taxes           
0.1        
   1.7 
      3.5 
        1.0  
  1.0 
        2.9 
 
Int’l trade taxes 
2.8               0.3 
      1.8 
        3.2 
  1.4 
       1.9  
 
Other taxes 
0.5        
    0.4 
     0.3 
        0.5  
  1.4 
        0.6 
Note: Data for Bhutan are for general government, not just central government.    
Source: IMF. 
 
The primary issues in the Bangladesh tax administration system are: (i) low level of voluntary 
compliance under both direct taxes and VAT; (ii) lack of an integrated revenue and registration system; 
(iii) an organizational structure reflecting a tax by tax design and assessments implemented through small, 
geographically scattered circle offices that undermine opportunities for specialization of work and 
automation; (iv) absence of information exchange and scant cooperation amongst tax wings; (v) 
weaknesses in customs valuation procedures and customs clearance operations, although these have been 
improved following the introduction of ASYCUDA++; (v) very limited use of information technology 
within the tax system and the absence of a comprehensive IT development strategy; (vi) structural 
weaknesses in VAT design leading to an inability to implement an unbroken VAT audit chain through the 
retail stage; (vii) a narrow income tax base caused by many exemptions and generous tax holidays; (viii) a 
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weak Board with no strategic planning capacity and limited monitoring capacity; and (ix) rigid human 
resource policies including a compressed pay scale for staff that threatens integrity and undermines efforts 
to recruit staff with vital specialized skills. Reform in tax administration is needed (a) to mobilize 
additional revenue sorely needed to finance investments in infrastructure and human development 
programs, (b) to achieve deficit reduction targets, and (c) to ensure that revenue is generated in a 
transparent, efficient, and equitable manner. In addition, the need to deepen the trade liberalization agenda 
adds to the urgency of increasing revenue from income and value added taxes.  
 
The Government of Bangladesh (GOB) recognizes weaknesses in tax administration and the 
urgent need to increase tax revenue in order to support critical investments in human development and 
physical infrastructure. In his June 2006 budget speech, the Finance Minister had this to say
.
“….with a 
view to reforming the revenue administration, we have formulated a Strategic Development Plan. Under 
this Plan, modernization of the National Board of Revenue has been taken up on a priority basis. The 
Board is being revamped and reconstituted, and responsibilities are being assigned to the members of the 
Board along functional lines. International and local consultants will assist the members of the Board in 
this regard.”  
A
successful recent initiative of the NBR is the setting up of two Large Taxpayer Units, one for 
income tax and another for VAT. For the budget of fiscal 2006-07, the GOB has set itself a rather 
ambitious target of raising tax revenue by 19 percent which, if met, would raise the tax-GDP ratio by 0.5 
percent.  The International Monetary Fund and DFID (through the RIRA technical assistance program) 
are supporting improvements in the LTUs for income tax and VAT. The DFID-RIRA program also 
covers some broad training in auditing skills, assistance for a centralized internal audit unit and measures 
to improve staff integrity and stakeholder dialogue. The IDA-financed Economic Management Technical 
Assistance (EMTA) includes a component (US$4 million) to support further organizational changes 
within NBR, including initial steps to strengthen the Board and its procedures; advisory support for 
initiating change management; development of an IT department, IT strategy and an IT needs assessment; 
training support; and additional reforms in customs that would build on changes implemented under the 
Bangladesh Export Diversification Project (BDXDP), in particular strengthening valuation capacity.
1
In response to a government request, a Bank mission was undertaken in January 2004 to discuss 
options for modernizing the NBR that are additional to existing commitments under the program with the 
IMF. Senior officials from the Ministry of Finance and the NBR requested Bank support with a 
comprehensive program to modernize tax administration in collaboration with other development 
partners. In order to prepare this program it was agreed that NBR would formulate a strategic plan that 
would set clear goals for the organization and identify the main strategic areas and actions required to 
achieve these goals. The NBR Strategic Development Plan was drafted in consultation with NBR staff at 
all levels and endorsed by the Finance Minister in May 2005. Budget announcements in FY06 and FY07 
commit the government to a modernization program for NBR. The proposed project would help the 
government implement the NBR modernization strategy in collaboration with other development partners, 
namely the IMF and DFID. 
 
II. Proposed project development objectives
 
The primary objectives of the proposed project are to raise tax revenue through improved 
compliance; increase efficiency of tax administration through organizational changes, reengineering of 
1
The BDXDP closed on June 30, 2004. 
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business processes and automation; and establish more transparent and equitable tax collection services. 
A
revenue increase will support much needed investments in human capital and physical infrastructure 
that will foster higher growth and poverty reduction. In addition, more transparent tax administration 
systems will contribute to an improved investment climate and public sector governance. Tax 
administration modernization is a priority CAS agenda for 2006 through 2009 which, 
inter alia
,
has been 
framed in the context of the Government’s PRSP goals and strategies.  
 
III.   Preliminary Project Description 
 
The details of each project component will be determined in consultation with NBR and the 
Ministry of Finance. At a minimum, the project components will have to address organizational 
constraints, scale up administrative and operational reforms implemented in the income tax and VAT 
LTU, and improve taxpayer services while improving voluntary taxpayer compliance and reducing 
opportunities for corruption. The project would be prepared in collaboration with the IMF and DFID and 
would complement technical assistance provided by DFID.  
Component 1:  Strengthening Management and Organizational Development   
The project would help implement a phased reorganization along functional lines, with scope to 
integrate selective elements of the taxpayer size segment approach, and strengthen core management 
functions begun under EMTAP. Strengthening of management will involve changes in Board procedures, 
training and the development of management information systems that will permit more timely reporting 
and greater transparency and will in turn enhance productivity, accountability and governance. The 
component will also build capacity for NBR to conduct strategic and operational planning. 
 
Component 2: Improving Revenue Operations
 
This component would support a reengineering of NBR’s core business processes and their 
automation. Most importantly, it would seek to scale up new procedures piloted at the LTUs, including 
self-assessment and modern processes to monitor VAT compliance. New regional tax offices focused on 
medium taxpayers would be set up, co-locating income and VAT and providing for greater sharing of 
information, resources and removing duplication of functions. Initially, these would be introduced in one 
or two regions and expanded gradually to other areas of the country so that NBR is able to manage better 
these complex changes. The above changes would also involve implementing an integrated revenue and 
registration system; and strengthening basic areas of revenue administration, such as audit, enforcement, 
and appeal procedures. Procedural changes within customs will be more modest given reforms already 
introduced under BDXDP and further institutional building measures planned under EMTAP. Customs 
reforms will focus on further expediting clearance and strengthening risk profiling and post-clearance 
audits.  
This component would finance hardware, software, and technical assistance as well as civil works 
to establish an adequate working environment for NBR staff and a supporting environment for computers 
to function.  
 
Component 3:  Policy Support
 
This component would seek to improve the legal environment in which NBR operates so that tax 
administration can become more efficient, transparent and equitable and the proposed operational reforms 
can be successfully implemented. Policy changes would involve penalties and other incentives to enhance 
compliance and facilitate enforcement. The component would also build capacity for conducting policy 
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reviews, estimating compliance and revenue collection, and implementing joint-policy assessments with 
the Ministries of Finance and Commerce. 
 
Component 4 - Human resource development and professional integrity
 
NBR has not had a dedicated HRM function. This component would build upon changes initiated 
under EMTAP which seeks to support the introduction of a modern HRM function. It would include 
modernizing recruitment, selection, hiring procedures, workforce planning and career development and 
automating HRM systems. It would support initial changes in compensation policies and performance 
incentive systems. The project would also provide technical training to staff to raise the level of agency 
professionalism and integrity, would strengthen training centers with the capability of overseeing distance 
learning and promote greater integration of learning programs and curricula between the two centers.  A 
formal strategy to reduce vulnerability to corruption and strengthen professional integrity would be 
developed. This component would be prepared in close collaboration with Bank staff supporting civil 
service reform in Bangladesh.  
 
Component 5:  Taxpayer education and public accountability
 
Taxpayer education is currently minimal and will need to be strengthened considerably to 
facilitate greater compliance. In addition, taxpayers and the public can play an important role in shaping 
NBR and improving governance and accountability. This component would include activities to support 
(i) NBR’s public disclosure and transparency, (ii) taxpayer education (e.g., communication programs, 
internet facilities, and a call centre), (iii) facilitate taxpayer participation in shaping NBR’s performance 
(e.g., through surveys and oversight panels), and (iv) training for freight forwarders and customs brokers 
to ensure maximum diffusion among customs clients of new procedures and diminish vulnerability to 
informal payments.    
 
Component 6: Project support unit
 
This component would finance consultants on procurement and financial management to assist 
the Project Director, an NBR Member, to meet World Bank Guidelines for accountability and 
transparency.  
 
IV.  
Tentative financing 
Source: ($m.) 
BORROWER/RECIPIENT 0 
INTERNATIONAL DEVELOPMENT ASSOCIATION 
60 
 Total 
60 
 
V. Contact 
point 
 
Contact: Zaidi Sattar 
Title: Sr Economist 
Tel: 5764+426 
Fax:  
Email: Zsattar@worldbank.org 
Location: Dhaka, Bangladesh (IBRD) 
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