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The National Board of Revenue (NBR) has initiated efforts to reduce tax exemptions in order to increase revenue by reviewing the current situation and policies. Consequently, individual and corporate taxpayers may lose some or all of the benefits of tax exemption.
The Tax Department of the NBR has recently formed a committee to formulate clear guidelines for tax exemptions. According to the relevant sources, only eligible individuals and institutions will receive this benefit, with the understanding that the granting of such exemptions is not restricted.
The government is also planning to review and reduce tariff concessions on imports of locally available raw materials and intermediate goods for the industry. This step is primarily taken to support the backward linkage industry by promoting local industry.
The tax expenditure in FY 2020-21 was approximately Tk 1,26,000 crore, accounting for 3.56 percent of the GDP during the discussed period. Under the 'Made in Bangladesh' initiative, five sectors have been granted tax exemptions. Information technology, apparel and textiles, economic zones, and hi-tech industries have collectively received tax breaks of Tk 10,000 crore, which are also considered taxable.
During this period, mobile, electronics, and textile manufacturers, along with industries in economic zones, have collectively been granted duty exemptions exceeding Tk 10,000 crore. Tax exemptions for individual taxpayers amount to Tk 40,000 crore, while those for companies are more than double that.
It is noteworthy that the International Monetary Fund (IMF) has directed Bangladesh to streamline its tax expenditure as a condition for obtaining a loan. The multilateral lender has also stipulated an annual increase in the tax-to-GDP ratio by 0.5 percent until fiscal year 2025-26.
Analysts have pointed out instances of the misuse of tax exemptions. However, tax exemptions are also provided to facilitate local industries, encourage the establishment of industries in backward areas, promote new or hi-tech industries, and encourage the establishment of industries in economic zones. There are also allegations that some industries have been taking advantage of such tax exemptions for years through their influence or unethical means.
NBR recently published a report on tax expenditure, revealing that 102 sectors are currently partially or fully exempted from tax. Among these, 40 sectors are exempted for individual taxpayers, while the rest are partially or fully exempted for companies, industries, or investments.
According to the report, an annual income tax exemption of Tk 1,25,813 crore is provided in the country. Out of this amount, Tk 85,315 crore, or 68 percent, is granted as corporate tax exemption at the organizational level. The remaining Tk 40,500 crore exemption is allocated to individual taxpayers. The calculation pertains to the income tax for the financial year 2020-21. The NBR stated that the amount of income tax exempted is equivalent to 3.56 percent of the gross domestic product (GDP) for that year.
According to the NBR report, microfinance institutions enjoy the highest tax exemption among corporate taxes, receiving Tk 15,315 crore as a concession annually. Following them, the power and energy sector receives concessions of Tk 8,380 crore, and the garment sector benefits from Tk 3,437 crore. Among individual taxpayers, the expatriate income sector has received the highest tax deduction of Tk 11,287 crore. Additionally, tax exemptions of Tk 2,985 crore have been granted to those involved in poultry and fish farming, and Tk 965 crore to investments in the stock market.
In this regard, Khondaker Golam Moazzem, the senior research director of the Center for Policy Dialogue (CPD), told The Daily Messenger that tax exemptions can be granted to various backward industries to propel them forward. However, he noted that many individuals in our country often misuse this opportunity, taking advantage of tax exemptions despite having influence. Consequently, the government is deprived of revenue.
In light of this situation, Khondaker Golam Moazzem suggested that the government should carefully verify the necessary areas and provide them with the necessary support. He emphasised that the NBR needs to be vigilant to ensure that no one can misuse the facilities provided by the government.
Messenger/Disha
