Phasing out tax holidays

FE Team | Published: April 23, 2026 21:30:24

The decision of the National Board of Revenue (NBR) to phase out tax holidays has been a long time coming. For years, these incentives were promoted as tools to stimulate investment and industrial growth. However, their overall impact has been mixed at best. The NBR's latest move signals a clear shift towards a more uniform, compliance-driven tax regime, with an emphasis on broadening the tax base and strengthening revenue mobilisation. Instead of relying on exemptions to attract investors, the government now appears committed to ensuring that all businesses contribute to the national exchequer.
This policy direction was reaffirmed during a recent pre-budget discussion where the NBR Chairman made it clear that there are no plans to introduce new tax holidays for any industry. His remarks came in response to demands from business leaders, including a proposal for a 15-year corporate tax holiday for the semiconductor sector to encourage both domestic and foreign investment. The government's stance reflects a broader intention to move away from a culture of tax exemptions and towards a system where tax compliance is universal, regardless of the applicable rate. But industry groups continue to advocate for extended incentives, arguing that tax holidays remain an important tool for nurturing emerging sectors and attracting capital in a competitive global environment. This highlights a growing policy divide between the goals of revenue mobilisation and investment promotion.
Tax holidays, by design, are temporary incentives that reduce or eliminate corporate income taxes for a certain period -- typically five to ten years -- to encourage investment in certain sectors. In Bangladesh, such incentives have historically been offered to industries including pharmaceuticals, textiles, IT services and agricultural machinery. In some cases, businesses have enjoyed full tax exemptions in the initial years, followed by gradually reduced rates. Additional benefits have also been extended to healthcare providers operating outside major urban centres like Dhaka and Chattogram. Proponents argue that these incentives can stimulate economic activity, encourage entrepreneurship and help develop priority sectors. However, critics question their effectiveness, noting that tax holidays often shift the timing of investments rather than generating genuinely new economic activity. More importantly, they can result in significant revenue losses for the government and create opportunities for misuse, such as profit shifting to tax-exempt entities.
From the NBR's perspective, these concerns are increasingly difficult to ignore. The continuation of generous tax exemptions not only constrains public revenue but also complicates tax administration and undermines fairness within the system. By phasing out such incentives, the government aims to create a level playing field where businesses compete on the basis of efficiency and innovation rather than preferential tax treatment. That said, the transition away from tax holidays should be approached with caution. While their shortcomings are evident, these incentives have played a role in supporting industrial growth and attracting investment, though not in the most efficient manner. Moving forward, a balanced approach is essential -- one that combines a predictable and transparent tax regime with targeted, performance-based incentives where necessary.