In the first half of FY25, Bangladesh’s revenue mobilization significantly lagged behind the ambitious annual growth target of 32.2%. In the remaining months, a growth of 55.5% is required to meet the targets.
According to the Centre for Policy Dialogue (CPD), if this trend continues, the revenue shortfall could reach Tk105,000 crore, deeply impacting Bangladesh’s economic stability.
Instead of this huge shortfall assumption, the think tank recommended increasing the tax-free income limit to Tk4 lakh in the upcoming FY26 budget, considering the ongoing high inflation rate.
The think tank made the proposal in a press conference titled “National Budget 2025-26: CPD's Suggestions” on Sunday.
It also said that Bangladesh Bank's plan to bring the inflation rate down to 7-8% by the end of June would be impossible to achieve.
The report also said hikes in gas prices are likely to adversely impact the inflation scenario—particularly that of non-food items.
However, the Bangladesh Energy Regulatory Commission last month proposed increasing gas prices for new industries to Tk75.72 per cubic meter, up from the current Tk30, which drew widespread criticism.
CPD Executive Director Fahmida Khatun presented the keynote presentation.
“Total revenue collection recorded a meager growth of 4.4% during July-December in FY25. If the annual growth target of 32.2% is to be met, then total revenue collection will need to increase by a whopping 55.5% during the remainder of FY25, a highly unlikely prospect. If the current trend of revenue mobilization continues, then the revenue shortfall could reach Tk105,000 crore at the end of FY25,” she remarked.
She also said: “The government had set the tax-free income limit at Tk3.5 lakh in the current fiscal year's budget. But inflation was on an upward trend during the July-February period. People are breaking into their savings to afford food. In this situation, we believe it is logical to increase the tax-free income limit. Therefore, we think it should be raised to Tk4 lakh in the next fiscal year.”
She highlighted the urgent need for reform within the National Board of Revenue (NBR) to enhance efficiency and compliance, advocating for broad-based tax reforms that focus on enhancing tax collection and administration.
The CPD executive director extended her recommendations to specific fiscal policies across various sectors.
For the health sector, she called for increased budget allocation to prevent high out-of-pocket spending, which exacerbates poverty.
Regarding education, she recommended fiscal measures to support improved funding, particularly targeting the underprivileged to enhance access and quality.
She also emphasized the importance of supporting small and medium enterprises, crucial for economic diversification and employment, and suggested restructuring the energy sector’s financial strategy to address persistent fiscal deficits and promote sustainable energy practices.
Additionally, Dr Khatun urged the integration of environmental sustainability into fiscal policies, recommending incentives for green technologies and penalizing pollutants to foster a greener economy.
Professor Mustafizur Rahman, distinguished fellow, CPD, recommended enhancing food stocks and expanding the importer base to stabilize market prices and ensure food security, particularly as we approach the Boro season.
Additionally, broadening initiatives like the family card program is crucial to address immediate food needs and prepare for our upcoming graduation from LDC status.
Tax-free income ceiling
The tax-free income ceiling is currently Tk350,000.
Currently, individual taxpayers are subject to progressive tax rates of 5%, 10%, 15%, 20%, and 25%.
There is no tax for a Tk350,000 income, while the next Tk100,000 is taxed at 5%, the following Tk400,000 at 10%, the next Tk500,000 at 15%, the subsequent Tk500,000 at 20%, and the above is at 25%.
However, the tax-free income limit is Tk400,000 for women taxpayers and individuals over 65 years, while third-gender taxpayers and individuals with disabilities have an exemption up to Tk550,000.
For gazetted freedom fighters, the exemption limit is Tk500,000.
Also, the minimum tax limit varies by location. For residents under the Dhaka and Chittagong city corporations, the minimum tax is Tk5000, while Tk4,000 is for those in other city corporations and Tk3,000 is for taxpayers outside city corporation areas.
Key policy recommendations
- Restore macroeconomic stability by curbing high inflation, maintaining stable foreign exchange reserves, and enhancing fiscal space.
- Set realistic fiscal targets for FY26 by considering domestic and external economic conditions and learning from past experiences.
- Initiate institutional reforms in the NBR by creating separate entities for revenue policy and administration to improve domestic resource mobilization.
- Expand cold storage facilities for agricultural products to establish a strategic buffer stock for price stabilization.
- Secure additional loan funding for BPDB and PetroBangla through consultations between MoPEMR and MoF to clear overdue payments to locally funded IPPs.
- Reinstate the original VAT and tax eligibility thresholds by withdrawing the recent reductions to Tk50 lakh for VAT and Tk30 lakh for turnover tax.
- Increase the health budget allocation in FY26 to reduce out-of-pocket health expenditures and prevent poverty.
- Expand the school feeding program to cover all 9.3 million primary school students nationwide.
- Provide VAT exemptions and incentive tariffs for renewable power plant equipment and impose a 1% surcharge on goods produced through environmentally harmful means.
