The Hidden Scale of Bangladesh’s Informal Economy and Its Fiscal Impact

to The Business Standard, Bangladesh's informal economy now absorbs roughly 58 million workers—approximately 81% of the country's 71.7 million-strong employed population, per the Labour Force Survey 2024—a structural feature that directly constrains state fiscal capacity and any credible trajectory toward upper-middle-income status.

The weight of unmeasured activity

The informal sector's footprint extends well beyond labor statistics. Globally, informal economic activity accounts for an estimated 25–35% of GDP and employs roughly 58–60% of the world's workforce—close to two billion people—according to tracking by the World Bank Group and the International Labour Organisation. Bangladesh sits well above that benchmark. Agriculture alone illustrates the disconnect: the sector contributes only 11–12% of national GDP, as measured by the Bangladesh Bureau of Statistics (BBS), yet absorbs 38–40% of total employment, with approximately 97% of agricultural workers classified as informal. The interim government's decision to retain a tax-free agricultural income threshold of Tk5,00,000—above the standard individual ceiling of Tk3,75,000—amounts to a tacit acknowledgment that existing fiscal instruments remain poorly calibrated to rural economic structures, where smallholder farming, daily wage labor, and unpaid family work predominate without contracts or legal protection.

Retail and the mechanics of avoidance

The retail segment presents a sharper analytical problem. Unlike agriculture, where informality stems largely from structural exclusion, small-shop informality frequently constitutes active evasion. The National Board of Revenue's (NBR) VAT Intelligence and Investigation Directorate has reported that up to 88% of small shops operate entirely outside the tax net, while a separate NBR survey indicates that 60% of shops in Dhaka pay no taxes at all. Many of these establishments function on a cash-only basis specifically to avoid registering for a Tax Identification Number (TIN). Closing this gap is administratively tractable; the political economy of enforcement, however, remains unresolved.

The patronage constraint

Underlying the informal economy is a network of grassroots extortion, tender manipulation, and informal levies on transport, local markets, and construction sites—revenue streams frequently embedded in local and national political patronage structures. Formalization efforts that ignore this overlay risk displacing activity rather than capturing it. The challenge for policymakers is therefore structural: any meaningful expansion of the tax base requires decoupling commercial activity from the patronage networks that currently sustain it. Without that decoupling, NBR revenue projections will continue to undercount an economy that, by most labor measures, is already operating at scale beyond the state's fiscal reach.