To meet ambitious revenue collection targets, the National Revenue Board (NBR) is moving toward doubling the source tax on the supply of essential food items.
Under the new proposal for the upcoming FY27, the source tax on at least 28 categories of agricultural and food products—including rice, pulses, edible oil, wheat, onions, and potatoes—is expected to rise from the current 0.50% to 1%.
This strategic shift comes as the government faces significant revenue shortfalls due to an economic slowdown and limited expansion of the tax net, prompting a move to increase the burden on existing supply chains.
The proposal was discussed in a high-level meeting on Wednesday involving Finance Minister Amir Khasru Mahmud Chowdhury and Prime Minister Tareq Rahman, along with senior officials from the Ministry of Commerce and the NBR.
If the prime minister grants final approval, the doubled tax rate will be a centerpiece of the upcoming national budget.
While the NBR estimates that this move could generate over Tk500 crore in additional annual revenue, economists warn that the policy reversal could further aggravate the nation's persistent inflationary pressures.
Item list
The list of items targeted for the tax hike covers nearly every staple in the Bangladeshi kitchen.
Beyond basic grains like rice and wheat, the proposal includes essential vegetables such as potatoes, onions, and garlic, as well as protein sources like lentils and chickpeas.
Spices—including ginger, turmeric, chili, cardamom, and cinnamon—along with sugar, salt, and all varieties of fruits, are also slated for the increase.
Even agricultural by-products like rice bran and jute products will not be spared, marking a comprehensive taxation of the local food supply chain.
Industry insiders explain that this tax is typically deducted at the source when corporate entities, such as large food processors, hotels, or supermarket chains, pay their suppliers.
While it is technically a tax on the supplier's income, market analysts argue that businesses almost always treat source tax as a direct operational cost.
Consequently, the burden is likely to be passed on to the end consumer, threatening a fresh spike in retail prices at a time when food inflation remains a critical concern for the general public.
The current move marks a sharp U-turn in fiscal policy. The current NBR chairman Abdur Rahman Khan, in his previous role as the head of a professional accounting body in 2023, had strongly advocated for keeping all agricultural and essential goods outside the purview of source tax to protect the purchasing power of the masses.
Historically, the tax rate for these items has fluctuated wildly; it was raised to 2% in FY24, subsequently lowered to 1%, and then slashed to 0.50% by the interim government specifically to contain inflation.
Doubling the rate now raises serious questions about policy consistency and the government's commitment to price stability.
Business leaders, including former officials of the Bangladesh Cold Storage Association, have voiced concerns that once tax is collected by the NBR, obtaining a refund is notoriously difficult, forcing businesses to factor it into the commodity's final price.
With food inflation currently hovering near the 10% mark, any additional tax at the supply level could disrupt the fragile balance of the market.
Experts argue that while the government's need for revenue is undeniable, choosing to tax basic sustenance may lead to a collision between fiscal goals and public welfare.
Beyond staples
The upcoming budget is expected to feature several other aggressive tax measures beyond the food sector.
Sources indicate that the government is considering doubling the source tax on export incentives from 10% to 20% and introducing a "package VAT" for small businesses at the upazila level.
Other plans include making Business Identification Numbers (BIN) mandatory for opening bank current accounts and increasing VAT on luxury or processed items such as fruit juices, ice cream, and cosmetics.
Additionally, there are plans to impose advance income tax on the registration of motorcycles and battery-operated rickshaws.
A particularly contentious proposal involves the taxation of e-cigarettes and nicotine pouches.
Although the interim government had previously moved to ban these products, the NBR is now considering bringing them under a heavy tax bracket similar to smokeless tobacco.
While public health advocates argue that a total ban is preferable, they insist that if the products remain in the market, they must be taxed at the highest possible rate to discourage use among the youth.
