Govt reverts to tax waiver strategy for economic rebound

The new government is set to return to a tax-exemption-driven strategy in the national budget, being unveiled today, aiming to protect local industries, attract investment, and generate employment.

Although the revenue authority has been gradually rationalising tax exemptions under the Tax Expenditure Policy 2023, the upcoming fiscal measures are expected to introduce a range of predictable and long-term tax incentives to help restore investor confidence.

From agriculture and information technology to heavy and environmentally friendly industries, tax waivers are likely to be offered to attract both domestic and foreign investment. Most of these incentives are expected to remain in place for at least five to seven years.

Election manifesto of the BNP-led government also pledges to create employment by encouraging local and foreign investment.

Economists praise the move to boost local investment, but suggest careful review of the tax exemptions so that it can pass on to the consumers and generate employment.

Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), says such drastic TE is required to pull out the economy reeling with stagnant interments. "Private-sector credit growth dropped to 4.0 per cent, showing a serious concern on declining local investment," he adds.

Dr Masrur Reaz, chairman of the Policy Exchange Bangladesh, suggests a careful review of the TE to support the highly potential sectors.

He, however, suggests reviewing the TE facility offered for the industries for years and assessing its economic outcome.

An analysis done by the National Board of Revenue (NBR) says tax expenditure eats up nearly 3.0 per cent of Bangladesh GDP.

For the first time, Bangladesh is set to maintain static and predictable corporate tax rates for the next five years, through 2031, providing businesses with greater policy certainty.

Local manufacturing industries are expected to receive five-year tax-exemption packages. Sectors likely to benefit include mobile-phone manufacturing and assembly, computers, laptops, printers, toner production, hybrid and plug-in hybrid vehicles, three-wheelers, four-wheelers, electric vehicles, electric buses, and trucks.

These incentives are expected to remain effective until 2030.

To encourage entrepreneurship, startup companies are set to enjoy full VAT exemptions at the local stage, including exemptions on the rentals of office spaces and establishments, until 2035.

To strengthen energy security, coal imports for power generation are expected to enjoy tax benefits until 2030. Imports of equipment for Effluent-Treatment Plants (ETPs) will remain tax-exempt until 2027.

Local manufacturers of medical equipment are likely to receive reduced duties on the import of parts and components until 2030. Similar incentives are expected for the shipbuilding-and dredger-manufacturing industries.

The semiconductor industry is set to enjoy a concessional 1.0-percent duty on the import of raw materials until 2031.

A 10-year tax holiday with zero-rated tax is expected to be introduced for edible- oil production using locally grown oilseeds. The measure aims to attract investment in agriculture and ensure a stable supply of edible oils while reducing dependence on imports.

Manufacturers of mobile phones, refrigerators, freezers, air conditioners, washing machines, ATMs, CCTV cameras, computers, and other digital devices are also expected to receive tax benefits on the import of raw materials and equipment until 2030.

In line with the government's green transition agenda, local manufacturers of environment- friendly sodium-ion batteries and lithium-ion battery packs are set to enjoy tax exemptions until 2030.

The proposed incentives reflect a broader policy shift towards using targeted tax relief to stimulate investment, promote import substitution, support industrial diversification, and create employment opportunities amid ongoing economic challenges.

Earlier, the government was slashing TE in line with the conditions of the International Monetary Fund against its credit support.

Meanwhile, rules are being revised to allow legalization of undisclosed money on payment of high penal taxes in purchase or sale of land and apartments unquestioned.

The facility is likely to be incorporated into the Finance Bill 2026 in a bid to help genuine taxpayers who cannot disclose their actual purchase value of land and apartments due to differences in government Mouja value and actual market value.

However, the penalty for voluntary disclosure of income is 20 per cent in addition to normal payable taxes on such undisclosed excess purchase price or undisclosed excess sale price.

"Notwithstanding anything contained in any other law in force in Bangladesh, no question shall be raised and no proceedings shall be initiated regarding the source of the following investments, purchases, or receipts voluntarily declared by any person, or regarding the tax paid thereon….," reads the new Finance Bill obtained by the FE.

If the actual purchase price of any land, building, or apartment purchased by a taxpayer exceeds the value stated in the deed, the taxpayer shall pay income tax at the regular rate applicable to individuals on such undisclosed excess purchase amount, it adds.

Same facility would be applicable for sales of the land, building or apartments.

The income tax paid under this section would be shown as lifestyle-related expenses in the income-tax return.

If the declarant has been convicted by any court in Bangladesh for any criminal offence or any criminal case is pending against the declarant, they would not be eligible to avail the opportunity.

About the black money-whitening provision, Professor Mustafizur Rahman says such a facility is not usually welcomed. However, in this specific context, it may be considered for disclosure, as many genuine taxpayers face difficulties due to valuation differences.

"This opportunity should be offered only once in a lifetime and that the mouja rate should be reviewed immediately to prevent the generation of undisclosed income in the future."

Dr Masrur Reaz, however, opposes the provision, particularly for buyers.

"Such a facility could encourage the declaration of ill-gotten money as it allows disclosure without scrutiny of the source of funds," he says.

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