The proposed national budget for FY2026-27 includes sweeping reductions in advance income tax (AIT) and withholding tax rates, alongside a major change in source tax treatment, in a move aimed at easing pressure on business cash flows and improving liquidity across the private sector.
The proposals aim to reduce tax burdens at the import and transaction stages. It also seek to address long-standing concerns over unadjusted tax payments and delayed refunds, which business leaders say have tied up working capital, raised production costs and discouraged investment.
Under the proposed changes, the general AIT on imports of industrial raw materials will be reduced to 4 per cent from 5 per cent. AIT on imports of 22 categories of raw materials used in local mobile handset manufacturing is proposed to be lowered to 1 per cent from the existing 5 per cent and 2 per cent slabs.
The budget also proposes withdrawing the existing 5 per cent AIT on kidney dialysis filter imports and reducing AIT on several products used by persons with special needs to 1 per cent from 2 per cent.
Deputy Managing Director of BSRM Group Tapan Sengupta welcomed the proposals, describing them as a constructive step by the government.
He said lower AIT rates would help reduce pressure on businesses but added that the effectiveness of the measures would depend on implementation. He noted that the existing refund and adjustment process remains slow and cumbersome, leaving substantial amounts of tax stuck for years.
According to him, faster refund and adjustment procedures would enhance the benefits of the proposed reforms, particularly for industries dependent on imported raw materials and high working capital turnover.
One of the most significant proposals involves a structural shift in the treatment of tax deducted at source. Currently, source tax is often treated as a minimum tax, limiting the ability of businesses to reclaim excess payments even when their actual tax liability is lower.
Under the proposed framework, withholding tax would be treated as advance tax rather than final tax, allowing businesses to claim refunds or adjustments against excess deductions.
Finance Ministry officials believe the change will improve liquidity conditions across the private sector, particularly for export-oriented industries, manufacturing firms and large importers by reducing blocked capital and improving cash flow.
The budget also proposes sector-specific reductions in withholding tax rates. The rate on gold and jewellery supply would be reduced to 0.5 per cent from 5 per cent, while tax on electricity purchases from power producers would fall to 3 per cent from 4 per cent.
The withholding tax on fuel oil supplied by refineries is proposed to be reduced to 1 per cent from 1.5 per cent. The rate on interest payments for foreign loans used in industrial projects would be cut to 10 per cent from 20 per cent, while payments to non-resident taxpayers for equipment rental would be reduced to 7.5 per cent from 15 per cent. Reinsurance premium payments would see the rate halved to 5 per cent from 10 per cent.
Officials said the reductions are intended to lower operating costs and improve investment competitiveness in sectors including energy, infrastructure and insurance.
Alongside the relief measures, the government proposes introducing a new advance tax of 0.20 per cent on the supply of goods to retailers.
Authorities said the tax would amount to Tk2 for every Tk1,000 of transaction value and would be adjustable against final tax liability. The measure is part of a broader effort to widen the tax base while maintaining a relatively low tax rate.
Economists and business leaders have broadly welcomed the reforms but stressed that their success will depend on implementation.
Former Chittagong Chamber of Commerce and Industry director Mahfuzul Haque Shah said timely refunds are more important than tax rate reductions.
He said large volumes of AIT remain stuck with the government for years, with some businesses reportedly awaiting refunds of around Tk1.5 billion, creating pressure on working capital and disrupting cash flow cycles.
He added that prompt recovery of withheld taxes would enable businesses to reinvest in production, expand operations and create employment opportunities.
Chairman of pharmaceutical manufacturer Albion Group Raisul Uddin Saikat said the proposed reduction of AIT on industrial raw materials, mobile industry inputs, dialysis filters and products used by persons with special needs is a positive initiative.
He said the measures would lower production costs, improve the competitiveness of local industries and help consumers access products at lower prices. The changes could also reduce costs associated with healthcare services and essential goods for persons with special needs.
He expressed hope that the proposals would contribute positively to industrialisation, employment generation and overall economic growth.
