The National Board of Revenue (NBR) has planned to aggressively trim the country’s ballooning tax exemptions, setting a target to reduce total tax expenditure by 50 per cent by 2030 to bolster the thinning tax-to-GDP ratio.
The plan, which aims to bring greater transparency and fiscal discipline, will focus on rationalising rebates and preferential treatments – particularly in sectors where incentives are no longer economically viable or disproportionately benefit large corporations.
The initiative follows alarming data showing that the public exchequer foregoes revenue nearly equal to the total amount of direct taxes it collects.
“Each year, the NBR grants tax exemptions roughly equal to the amount of tax it collects. In some cases, these exemptions even exceed the revenue collected,” Mutasim Billah Faruqui, NBR Member (Tax Policy), told TIMES of Bangladesh.
“To address this, the government plans to limit existing tax exemptions to 50 per cent over the next five years. Priority sectors will be identified, and exemptions in areas where revenue can be reliably maintained will be strictly controlled,” he added.
According to a recent NBR report, the total tax exemption is estimated at Tk107,132 crore, equivalent to 2.39 per cent of the country’s Gross Domestic Product (GDP).
This figure represents roughly 99 per cent of the total direct tax collection for the year, the report showed.
The report identifies corporate income tax as the primary driver of these concessions, accounting for Tk73,989 crore or 69 per cent of the total expenditure. Personal income tax concessions stood at Tk33,143 crore, or 31 per cent.
Furthermore, around 59 per cent of the overall tax gap is attributed to these embedded exemptions and special provisions.
In sectoral terms, a significant portion of the expenditure – Tk53,466 crore, or nearly half – falls under a broad “other” category, comprising various unspecified or aggregated exemptions.
Among identifiable sectors, microcredit and social welfare received the highest support at Tk12,589 crore, followed by power and energy at Tk7,987 crore and share capital gains at Tk7,071 crore. The garments and textiles sector, the country’s primary export earner, accounted for Tk5,825 crore in incentives.
Despite the move to cut tax exemptions, NBR officials acknowledged that incentives remain a vital tool for stimulating economic activity and supporting vulnerable groups.
However, the new strategy will lean toward modernising tax data systems and introducing “sunset clauses” to ensure support remains time-bound and aligned with national priorities.
The report also highlighted several technical challenges in current estimations. Using the “revenue foregone” method assumes taxpayer behavior remains unchanged if incentives are removed – a premise analysts say may not reflect reality, as businesses often shift operations in response to tax changes.
The lack of a comprehensive, digitised tax database also forces the NBR to rely on sample data, limiting the accuracy of sectoral breakdowns.
To counter these issues, the revenue board has recommended periodic reviews of existing incentives and the phasing out of economically unjustified provisions.
Strengthening digital tax administration remains a top priority to improve data accuracy and monitoring in the coming years.
Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office, welcomed the move but cautioned that the success of such a target hinges entirely on political will and administrative reform.
“Bangladesh ranks among the lowest in the world in tax collection as a share of GDP. While setting a target to cut expenditures is a step in the right direction, the real challenge lies in implementation,” he said.
He further said that while the government has frequently failed to meet revenue targets set under international programs, such as those by the IMF, the current fiscal pressure makes reform unavoidable.
“We need to move away from open-ended exemptions and toward a system where every incentive is backed by a rigorous cost-benefit analysis. Without digitising the tax administration and removing discretionary powers, these targets will remain on paper,” he added.
