While facing persistent pressure from elevated retail inflation, rising utility bills, healthcare expenses, and house rents, Bangladesh’s middle class faces a demanding fiscal landscape under the proposed FY27 national budget.
Economists, tax consultants, and financial analysts note that despite a slight upward adjustment to the personal tax-free income threshold, the broader structural changes within the personal income tax framework will increase the tax burden on fixed-income professionals and mid-tier salaried employees.
The budget proposes raising the individual tax-free threshold from Tk3.5 lakh to Tk3.75 lakh.
While this change initially appears to offer relief, the budget completely removes the lowest 5% individual tax bracket, meaning the first tier of taxable income will be taxed directly at 10%.
By doubling the baseline tax rate for entry-level brackets, the budget offsets much of the financial benefit gained from the higher tax-free threshold, shifting a larger tax burden onto lower- and middle-income salaried workers who report their earnings through formal payroll networks.
The proposed personal income tax structure sets the tax-free limit at Tk375,000 for the next two fiscal years.
Past this threshold, progressive tax brackets apply: the next Tk3 lakh of taxable income faces a 10% rate, followed by 15% on the next Tk4 lakh, 20% on the next Tk5 lakh, and 25% on the next Tk20 lakh, with any remaining balance taxed at a top rate of 30%.
With inflation holding above 9%, macroeconomists suggest that a larger increase in the tax-free threshold was necessary to protect real household purchasing power.
Since the 5% entry bracket has been removed, individuals whose earnings sit just above the tax-free limit will face an immediate 10% tax rate on their initial taxable bracket, driving up net tax obligations for mid-tier earners.
The burden on middle-class savers is further compounded by a reduction in personal investment tax rebates.
Previously, compliant taxpayers could claim a 15% tax rebate on investments made into National Savings Certificates (Sanchayapatras), Deposit Pension Schemes (DPS), life insurance policies, and approved provident funds.
The new budget scales this deduction down to 10%.
Concurrently, the maximum cap for eligible investments has been lowered from Tk10 lakh to Tk750,000.
Tax consultants point out that for every Tk1 lakh placed into long-term savings instruments, a taxpayer will receive roughly Tk5,000 less in annual tax savings.
This reduction in investment incentives may lower the savings rate among middle-class families who utilize these instruments for long-term financial security.
Proportional impact
A detailed financial simulation by SMAC Advisory Services shows that the percentage increase in tax liabilities falls most heavily on mid-tier salary brackets rather than high-income earners:
- Monthly salary of Tk74,000: An employee with an annual taxable income of Tk963,000 would see their annual tax liability rise from Tk5,000 under the legacy system to Tk7,454 under the proposed structure—a 49% increase in their net tax burden.
- Monthly salary of Tk98,000: For an individual in this bracket, annual tax obligations would climb from Tk19,504 to Tk30,754, representing a 58% increase.
- High-Income Earners (Tk250,000+ per month): While high-income earners face a larger absolute tax bill, their percentage increase is lower. This indicates that the structural changes have a disproportionately higher impact on mid-tier incomes.
Additionally, the budget proposes altering the tax treatment of National Savings Certificates.
By removing the final tax settlement clause, interest income from these certificates will now be added directly to an individual's gross income and taxed according to their progressive tax bracket, increasing the tax liability for retirees and small-scale savers.
Broader market impacts
Beyond direct income taxes, the budget proposes higher import tariffs and supplementary duties on several consumer goods.
Retail prices are expected to rise for imported vehicles, consumer electronics, gas cylinders, tiles, sanitary ware, microwave ovens, bicycles, and structural steel rods.
While these are not all daily necessities, price increases for construction materials and consumer durables can add to general inflationary pressures.
Fahmida Khatun, executive director of the Center for Policy Dialogue (CPD), noted that while the tax-free limit was raised, the removal of the 5% bracket and the reduction in investment rebates will increase the net tax burden for regular filers.
