Written by The Banking Post
The government is set to hold on to its tax exemption policies, pushing back against pressure from the International Monetary Fund to scrap incentives quickly.
Officials say the recommendation to phase out tax breaks abruptly—aimed at lifting the tax-to-GDP ratio to 9.21% by the next fiscal year—has been noted. But policymakers are wary of legal fallout and economic disruption, choosing a slower path instead.
Past attempts to withdraw time-bound exemptions have ended in court. In cases involving oceangoing ships and electronics, the High Court stepped in, halting revised tax measures after legal challenges from affected businesses.
Now, the National Board of Revenue plans to maintain reduced corporate tax rates and exemptions for key sectors, including exporters. A full transition to the standard 27.5% corporate tax rate for export-oriented industries is scheduled for July 2028.
Currently, apparel exporters pay 12%, with environmentally certified garment factories enjoying a lower 10% rate—well below the standard rate. Earlier plans to align these rates with other sectors this fiscal year were dropped, allowing a two-year transition window to ensure predictability.
Textile manufacturers, however, have already moved to the full tax rate since July 2025 after losing similar benefits.
Tax officials say the government is bound by “sunset clauses” embedded in exemption policies, warning that early withdrawal could be seen as a breach of commitment and invite legal disputes.
The issue is becoming more pressing as revenue pressures mount. Tax expenditures surged to Tk 1.63 trillion in FY25, up from Tk 1.47 trillion a year earlier, underscoring the fiscal cost of widespread exemptions.
Business leaders argue that higher corporate tax rates may not necessarily boost revenue. The head of the Bangladesh Garment Manufacturers and Exporters Association said exporters already face an effective tax burden of around 20% due to a 1% source tax on export earnings.
“If corporate tax increases, the source tax should be reduced,” he said.
He also pointed to the lack of an efficient tax refund system, which often leaves exporters paying more than intended. The BGMEA is set to present its budget proposals in a meeting with revenue authorities on Sunday.
