An additional Tk50,000 crore in revenue is being targeted through a broad rollback of tax exemptions in the FY27 budget, as the government moves to meet International Monetary Fund (IMF) conditions tied to its loan programme.
A large share of exemptions across income tax, value-added tax (VAT) and customs duties is under review, with the National Board of Revenue (NBR) reassessing facilities granted through schedules and statutory regulatory orders (SRO).
Three committees have been formed to review the exemption list and have been asked to submit reports by 20 April after examining which sectors and facilities may be withdrawn.
If implemented, the changes could bring nearly 300 goods and services under new income tax, VAT or customs duty coverage, raising the risk of higher prices.
Essential agricultural products and exemptions linked to specified time periods may remain outside the withdrawal list, according to NBR sources.
Many exemptions introduced as temporary measures have remained in place for years, while some industrial units secured tax benefits on political considerations without benefits reaching consumers or workers, NBR officials told TIMES of Bangladesh.
Only 30 per cent of export-oriented industries currently pay taxes, while the remaining 70 per cent continue to enjoy various incentives, according to NBR estimates, an issue that may also be addressed in the upcoming budget.
Tax expenditure, defined as revenue forgone through exemptions against standard tax or VAT rates, has long been viewed as a major obstacle to revenue mobilisation.
In FY23, revenue forgone through income tax, VAT and customs duty exemptions stood at about Tk2.66 lakh crore, against total government revenue collection of Tk3.25 lakh crore in the same year, according to NBR.
Of the total, Tk1.28 lakh crore was forgone through customs duty exemptions, Tk1.07 lakh crore through income tax exemptions, and Tk31,000 crore through VAT exemptions.
The reform push comes under a $4.7 billion IMF loan programme approved in 2022, of which about $3 billion has already been disbursed.
Loan disbursement was later halted as reform progress slowed, but talks on further release resumed after the new government took office.
The programme emphasises raising revenue collection and making the tax system more transparent and effective.
It also sets a target of increasing the tax-to-gross domestic product (GDP) ratio from the current 6.67 per cent to 9.2 per cent in the next fiscal year.
The economy is already under pressure from multiple fronts, with inflation yet to be fully contained, income and employment under strain, and investment still failing to grow at the expected pace, said former World Bank Dhaka office Lead Economist Zahid Hussain.
A broad withdrawal of exemptions could add to inflationary pressure on ordinary people, particularly as new stress builds in the energy and external sectors, he said.
Conditions imposed by the IMF and World Bank do not always fully align with Bangladesh’s economic realities, requiring a stronger political stance, effective economic diplomacy and reliable data, he added.
Tax exemptions are currently in place across agriculture and food products, education and healthcare, and energy and power.
Investors in export processing zones, economic zones and high-tech parks also enjoy tax benefits aimed at supporting investment and employment.
Remittance income continues to enjoy full tax exemption.
Reducing tax breaks is necessary, but removing them all at once would not be realistic, as a sudden rollback would increase tax pressure on affected sectors and could feed into inflation, experts said.
A sudden withdrawal of all tax exemptions would not be justified, as it could damage the confidence of both local and foreign investors, while larger firms would become stronger and smaller ones would struggle to survive, said Shasha Denims Managing Director Shams Mahmud.
Mahmud, also a former president of the Dhaka Chamber of Commerce and Industry, recommended phasing out the benefits gradually through sunset clauses.
Withdrawing all exemptions at once is not possible, as some have specified durations and must remain in place until those periods expire, while others are still needed to protect domestic industry, said NBR Member for Tax Policy Mutasim Billah Faruqui.
The plan is to cut the overall volume of tax exemptions by half over the next three to four years, which is expected to raise revenue collection naturally, he said.
