Govt scraps dozen misdirected income tax write-off SROs

A dozen income-tax write-off SROs have been scrapped by the interim government in a fiscal measure meant for enhancing state revenues and enforcing tax transparency, as the generosity was allegedly misdirected.

A major perverse use of the benefits was found to be legalizing 'black money' through investing in tax-exempt or low-tax ventures like fisheries and agriculture by those who have no relation with such sectors.

The cancellation of the 12 Statutory Regulatory Orders (SROs) on the direct taxation has been incorporated into the new budget for financial year 2025-26 to bring transparency in the tax system and prevent the "misuse of fiscal facilities".

This move, unveiled by Finance Adviser Dr Salehuddin Ahmed, signals a clear intent to broaden the tax base, reduce discretionary exemptions, and improve the overall efficiency in revenue collection.

According to National Board of Revenue (NBR) sources, among these regulatory orders, destined for clear-out from 1 July 2025, are those on tax exemptions for donations to several institutions, including the Bangabandhu Memorial Trust.

Additionally, various SROs offering tax largesse for agriculture and livestock have been revoked in recent years following allegations of benefit misuse and resultant revenue losses.

Experts believe the rollback of these income- tax SROs is a bold statement from the government, "prioritising robust revenue generation and a more transparent tax landscape for the benefit of the national economy".

These SROs were reportedly issued or extended due to negotiations by politicians during the previous regime.

It is a key component of the post-uprising government's broader tax-reform agenda, aimed at creating a more predictable and equitable taxation environment.

For years, numerous SROs have allowed for a multitude of exemptions and pared-down tax rates, often criticised for creating loopholes and hindering revenue generation. By streamlining these provisions, the government expects to unlock significant revenue potential and curb tax evasion.

Finance Adviser Dr Ahmed, in his budget speech, underscored the importance of this measure in achieving government's revenue targets and enhancing the nation's economic stability. While the budget also includes adjustments to tax-free income ceiling and new tax slabs, the cancellation of SROs is particularly noteworthy for its direct impact on transparency.

Below is a brief overview of some of the cancelled SROs and their primary benefits.

Under an SRO issued on March 9, 2009, the government offered tax exemption on donations to three specific institutions: Bangabandhu Sheikh Mujibur Rahman Memorial Trust, Rafatullah Community Hospital (RCH) Bogura, and Salvation For Discovery Hospital, Manikganj. NBR officials cited controversial and political affiliations as the reason for the cancellation of this facility.

Another SRO, dated January 2, 2013, offered tax waiver on donations to the 'Dhaka School of Economics Foundation'. However, there have been allegations of misuse of charitable donations and tax evasion associated with this SRO.

Similarly, an SRO, dated July 1, 2015, offered reduced tax on income from over 12 sectors, including agriculture, poultry, fish, flowers, silk, and mushrooms, ranging from 3-15 per cent. Another SRO, dated August 18, 2015, offered tax exemption on income from fisheries, poultry, and hatcheries, with zero-rated tax on the first quantum of Tk 1.0 million. There have been longstanding allegations of misuse of these benefits by high-income groups, primarily politicians, for 'whitening' undeclared income -- commonly known as black money.

In the new budget, the government, on the other hand, has increased the tax exemptions for marginal farmers, raising the income-tax threshold from Tk 200,000 to Tk 500,000.

The rest of SROs offer tax exemption on natural gas, on donations to 'Gafur Mariam Sattar Saqera Foundation', phased tax exemption on income from poultry and fish farming (zero to 15 per cent), Withholding tax on savings certificates, savings deposits, and export-based cash assistance is considered final and exempted from additional tax liability.

The SRO-borne facility for withholding tax on property transfers is considered final, having no additional tax liability, and so is tax exemption on imported parboiled and non-parboiled rice.

And an amendment to the Seventh Schedule of the Income Tax Act 2022 establishes special tax rates which often provided tax benefits for investing undisclosed funds.

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