The interim government, under pressure from the International Monetary Fund (IMF), has decided not to introduce any new tax exemptions in the upcoming fiscal budget.
Additionally, many of the existing exemptions across various sectors will be reduced or withdrawn, a move that has raised concerns among industrialists and economists.
Former FBCCI president Abdul Awal Mintoo warned that a blanket withdrawal of tax exemptions would further deteriorate the investment climate.
“Reducing or eliminating tax exemptions will severely impact industries and investments, negatively affecting the economy. Instead of cutting exemptions, the government should expand the tax net to increase revenue,” he said.
Echoing similar concerns, former caretaker government adviser AB Mirza Azizul Islam noted that production costs in the industrial sector have already risen due to the ongoing dollar crisis.
“If tax exemptions are withdrawn indiscriminately, investment costs will increase further, fueling inflation,” he cautioned.
The National Board of Revenue (NBR) has been struggling with a revenue shortfall exceeding Tk 58,000 crore in the first eight months of the current fiscal year.
Despite this, the IMF has set a target of collecting Tk 20.2 lakh crore over the next three fiscal years, with Tk 18.09 lakh crore to be collected by the NBR alone. The IMF has specifically advised the withdrawal of tax exemptions to meet these targets.
For the 2025-26 fiscal year, the government aims to collect Tk 5.85 lakh crore in revenue, with the NBR responsible for Tk 5.21 lakh crore.
This figure is set to rise further in subsequent years, with a target of Tk 6.89 lakh crore from the NBR in 2027-28.
IMF has made it clear that without ending the “culture of tax exemptions,” the revenue board will continue to face deficits.
NBR Chairman Dr Abdur Rahman Khan acknowledged that many unnecessary tax exemptions had been granted to appease influential groups.
“We have declared war against tax exemptions. NBR loses almost as much revenue due to exemptions as it actually collects. This practice must end,” he stated.
As part of the new budget strategy, existing exemptions on 43% of raw material imports will be cut by half.
Moreover, no new exemptions will be granted for raw material imports, especially for items available domestically.
This move is expected to increase government revenue but could raise costs for businesses.
Previously, tax exemptions were granted to IT and software firms, the garment sector, energy and power companies, microfinance institutions, and businesses in economic zones.
Although the government attempted to reduce these exemptions in the current budget, pressure from business leaders prevented full implementation. However, the next budget will see stricter cuts.
In addition, the government will discontinue the 50% income tax exemption on salaries for expatriates working in economic zones after their first three years.
Furthermore, VAT exemptions on pharmaceuticals, soap and shampoo raw materials, computers, laptops, motherboards, and servers may be reduced.
Finance Adviser Salehuddin Ahmed strongly criticised the prolonged practice of tax exemptions.
“For 50 years, we have nurtured industries like infants by giving them tax breaks. How long will this continue?” he questioned.
“The industries that have been nurtured for so long are now grown. Yet, they still demand protection. The time for protectionism is over,” he added.
IMF loan conditions and the road ahead
In January 2023, Bangladesh secured a $4.7 billion loan from the IMF, contingent on fulfilling a series of financial reforms, including revenue restructuring.
IMF has repeatedly expressed dissatisfaction over the slow progress in phasing out tax exemptions and has increased pressure for their removal in the next budget cycle.
With mounting revenue targets and a fragile economic outlook, the government now faces a delicate balancing act—meeting IMF conditions while preventing shocks to investment and industry.
