The Centre for Policy Dialogue (CPD) has recommended raising the tax-free individual income bar to Tk4 lakh in the next fiscal year from existing Tk3.5 lakh to ease inflationary pressure on the consumers.
At the same time, the highest individual tax rate should be brought back to pre-Covid level of 30 percent from 25 percent now to establish justice in the society, according to the think tank’s budgetary proposals for FY2025-2026 fiscal year presented at a press briefing on Sunday.
“Inflation remained high during the July-February period, with food inflation rates exceeding non-food inflation. Moreover, food inflation rates in rural areas were significantly higher than in urban areas. People are breaking into their savings to afford food,” said CPD Executive Director Fahmida Khatun.
“In view of this, we believe it is logical to increase the tax-free income limit to Tk4 lac,” Fahmida added.
The government had set the tax-free income limit at Tk3.5 lakh in the current fiscal year’s budget.
She believes that Bangladesh Bank’s plan to bring the inflation rate down to 7-8 percent by the end of June would be impossible to achieve.
Gas price hike to fan inflation
Any hike in gas prices is likely to adversely impact the overall inflation, especially non-food inflation, the think tank has warned.
Despite a modest fall in last two months, Consumer Price Index (CPI) remained over 9 percent for the 24th month in a row, eroding purchasing capacity of low-income households.
The Bangladesh Energy Regulatory Commission (BERC) last month proposed increasing gas prices for new industries to Tk75.72 per cubic metre, up from the current Tk30, which drew flaks from businessmen and mass people.
The prolonged high inflation for about three years has already caused widespread sufferings to the people and if BERC’s proposal is accepted will only add to their sufferings, according to the CPD.
Besides, the tariff war triggered by the Trump administration may aggravate the situation further.
Budget challenging for interim govt
The CPD said formulating a new budget amid economic woes is going to be a challenging task for the interim government.
“The interim government inherited an economy characterised by high inflation, subdued revenue collection, sluggish budget implementation, a liquidity crunch in the banking sector, and declining foreign exchange reserves,” Fahmida noted.
The lower momentum in export earnings and remittance inflows has further exacerbated economic vulnerabilities. Under the circumstances, restoring macroeconomic stability remains the foremost concern for policymakers.
“This requires targeted interventions to address inflationary pressures, stabilise the exchange rate, and ensure fiscal prudence,” Fahmida said, adding that the budget must prioritise the protection of vulnerable and disadvantaged groups and economic recovery.
In this context, the upcoming national budget presents a unique opportunity for the interim government to move beyond conventional approaches, implement short-term corrective measures, and establish the groundwork for medium-term reforms in resource mobilisation, public finance management, and expenditure efficiency.”
In the current fiscal year, revenue shortfall may stand at Tk1,00,500 crore
“A crucial first step in this process would be the development of a credible and well-structured fiscal framework,” it said.
Facing LDC graduation challenges
CPD’s distinguished fellow Prof Mustafizur Rahman believes that Bangladesh is going out of LDCs in 2026 and that the country should start setting tax policies from the next fiscal year keeping in mind the graduation challenges.
To face the challenges, cash incentives for the export-oriented apparel industry should be withdrawn, he suggested.
“The new budget has created a rare opportunity for us to bring about a structural change to our revenue management,” he said.
For a long time, it has been said to separate tax policy and the tax administration, which will have a long-term effect in formulating upcoming budgets, he outlined.
The corporate tax structure should be set in a manner so that it can be implemented without any discretion, he added, reminding that investment does not depend on tax rates only, but on other issues like investment climate.
In reply to a question on Trump administration slapping extra tariff on China, the economist said Bangladesh may not benefit much from the trade war as the country exports mostly cotton-based apparels to the US, while China exports man-made firbre items.
Additionally, the trade war may increase inflation in the US, which may decrese demand for Bangladeshi apparels in the US market.