Boosting Economic Activity: NBR’s Tax Exemptions Strategy
In a strategic move to stimulate economic growth, the National Board of Revenue (NBR) has granted significant tax exemptions to both individual taxpayers and the corporate sector. The exemptions, which total an estimated Tk 1,25,813 crore, equate to 3.56 percent of the country’s GDP. Individual taxpayers enjoy a relief of Tk 40,498 crore, while corporations benefit from a larger slice of Tk 85,314 crore. This financial maneuver is part of an effort to encourage private sector growth and industrialization.
As the NBR’s income tax wing sifts through data to rationalize tax expenditures for the upcoming budget, it aims to meet the stringent $4.7 billion loan conditions set by the International Monetary Fund (IMF). With the next fiscal year’s budget on the horizon, some rationalization is expected to take place.
The Policy Research Institute of Bangladesh (PRI) has recently projected that without reform, tax expenditures are likely to increase. PRI Executive Director Ahsan H Mansur highlighted the potential revenue loss for Bangladesh if current policies persist, which could reach up to seven times the current government budget size by FY41. Mansur suggests that phasing out certain exemptions could raise Tk 60,000 crore, providing a financial buffer while more comprehensive reforms are designed and implemented.
The government’s exemption strategy includes significant allocations such as Tk 15,315 crore for microcredit programs aimed at empowering rural women and alleviating poverty, and Tk 8,380 crore for the power and energy sector to ensure affordable electricity, oil, and gas. Additional exemptions are provided to bolster economic zones and high-tech parks with Tk 4,611 crore, RMG, textile, and accessories sectors with Tk 3,437 crore, and the IT-enabled services and software industry with Tk 1,477 crore.
Despite the IMF’s suggestion to withdraw tax exemption facilities for the information technology industry by June 2024, industry insiders are advocating for continued support until 2031 to advance the country’s technological capabilities. BASIS President Russell T Ahmed emphasized the need for NBR to refine its analysis and address any loopholes.
NBR Chairman Abu Hena Md Rahmatul Munim has expressed that tax expenditures have increased due to a focus on manufacturing and local industry, which in turn enhances economic activity and socioeconomic indicators.
Furthermore, individual taxpayers benefit from exemptions on foreign income, particularly remittances, with Tk 11,287 crore set aside. However, the IMF delegation has proposed withdrawing these incentives. Mansur argues that imposing taxes on remittances is not feasible at present due to the country’s need for foreign currency.
The government also extends tax incentives for investments in life insurances, government securities, mutual funds, ETFs, and publicly listed securities. However, these incentives may be subject to change as the IMF has recommended abolishing certain tax rebates.
State Minister for Finance Waseqa Ayesha Khan has called for a rationalization of exemptions, questioning the ongoing necessity of incentives that have been in place for decades. The minister’s stance suggests a need for the private sector to mature financially and reduce its reliance on government support.
