Proposed Income Tax Changes in Bangladesh National Budget Raise Equity Concerns

Strategic Insights -

The Centre for Policy Dialogue (CPD) has expressed concerns that the proposed income tax changes in the national budget will disproportionately affect low- and middle-income earners in Bangladesh over the next two fiscal years. CPD Executive Director Dr. Fahmida Khatun stated that the planned tax adjustments compromise the principle of equity in taxation, as the tax burden will increase significantly for lower-income groups while higher-income groups will experience modest increases. The CPD analysis highlighted that individuals earning Tk 6 lakh, Tk 10 lakh, and Tk 15 lakh annually will face tax increases of 12.5 percent, 16.7 percent, and 16.7 percent, respectively, over the next two fiscal years, whereas those earning Tk 30 lakh or more per year will see their tax burden rise by just 7.6 percent.

Key Takeaways:

  • The proposed income tax changes in the national budget will disproportionately affect low- and middle-income earners in Bangladesh over the next two fiscal years.
  • Individuals earning Tk 6 lakh, Tk 10 lakh, and Tk 15 lakh annually will face tax increases of 12.5 percent, 16.7 percent, and 16.7 percent, respectively, over the next two fiscal years.
  • Those earning Tk 30 lakh or more per year will see their tax burden rise by just 7.6 percent.
  • The increase in the annual tax-free income threshold to Tk 3.75 lakh from FY2026-27 is minimal and delayed, and the delay raises serious questions.
  • The proposed Tk 5.25 lakh tax-free threshold for "July warriors" and the minimum tax of Tk 1,000 for new taxpayers are steps in the right direction.
  • The CPD expressed concern that the tax system is unbalanced and falls short in reducing inequality.

Statistics:

  • Impact of tax increases on income groups:

- Tk 6 lakh earners: 12.5 percent tax increase

- Tk 10 lakh earners: 16.7 percent tax increase

- Tk 15 lakh earners: 16.7 percent tax increase

- Tk 30 lakh or more earners: 7.6 percent tax increase

  • Increase in annual tax-free income threshold: 7 percent from Tk 3.5 lakh to Tk 3.75 lakh
  • Delay in implementing the new threshold: despite surging living costs and persistent inflation
  • Impact of inflation on low-income and fixed-income groups: 27 percent-28 percent increase in cost of living over the same period
  • Proposed Tk 5.25 lakh tax-free threshold for "July warriors" and minimum tax of Tk 1,000 for new taxpayers: steps in the right direction

Sources:

  • The New Nation
  • Centre for Policy Dialogue (CPD)