The government may not offer any new waiver on VAT, known as a regressive tax, in the budget for financial year 2024-25.
And the customs wing of the revenue board is likely to phase out a plethora of goods from zero-rated to 1.0-to-5.0-percent taxes, according to budget documents obtained by the Financial Express.
For the first time ever, the VAT wing of the National Board of Revenue (NBR) has counted no 'loss' in its revenue in the upcoming fiscal year, compared to the outgoing fiscal, on account of fiscal measures, says a senior official involved with the budget preparation.
On customs measures, the official says, "The businesses have to build a mindset to pay a nominal rate of taxes from now on as they have availed the zero-rated duty for years."
Also, the official says, wealth surcharge, carbon tax or environmental surcharges in income tax measures remained unchanged.
According to the key findings of the Household Income and Expenditure Survey 2022 of Bangladesh Bureau of Statistics (BBS), top 10 per cent of the wealthiest households in Bangladesh now hold 40.92 percent of its total income, which was 38.09 percent in 2016, amid overconcentration of national wealth.
Also, top 5.0 per cent of households control 30.04 per cent of the total income, up from 27.82 percent in 2016. The bottom 50 per cent of households has seen their income share drop to 19.05 percent, from 20.23 percent in 2016, despite a relative decline in the poverty rate.
Economists say dependence on indirect taxes may put pressure on low- and middle-income group of people already struggling to fight inflationary pressures.
For FY2024-25, the NBR would have to collect Tk 4.80 trillion in tax revenue. Of the target, the income tax and VAT wings have to collect Tk 1.77 trillion each, while the customs wing over Tk 1.24 trillion.
In the budget -- up for being placed in parliament today -- the government may incentivize non-listed companies by slashing their corporate tax by 2.5 per cent while there in no tax relief for low-income individual taxpayers as their tax-free ceiling would remain unchanged despite erosion of real income owing to inflation.
People having net asset value of Tk 40 million would remain out of wealth surcharge next year as in the current year. However, tax rate for cooperative societies would go up by 5.0 per cent.
Source tax on trusts, public universities, and MPO-listed educational institutions on interest income of bank deposits is likely to be doubled. VAT would be increased on mobile-phone talk-time, all items containing sugar while passengers of MRT would see a 15-percent VAT from July 1.
Professor Dr Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), says apparently, it has been assumed that most of the taxation measures have been fixed targeting indirect taxes.
Excepting some of the changes on direct tax front to impose higher taxes on the well-off by upward adjustment of highest tax rate to 30 per cent, no significant measures are visible to tame income inequality, he adds.
"We have proposed introduction of inheritance or property taxes to minimize growing income inequality, but it may not be proposed in the budget," he says.
Executive Director of the Policy Research Institute (PRI) Dr Ahsan H Mansur sees inherent weakness in the tax policy which is triggering income inequality alongside other factors.
"Tax measures in Bangladesh are facilitating rich people while the poor are most affected," the economist says.
Wealth surcharge is currently taxing on accrual basis where the well-off have been excluded due to inheriting land properties, he points out.
"Major areas of wealth accumulation such as land and vast informal economy remaining out of the purview of tax net," he says as to how inequality will be increasing.
However, tax officials have said some of the proposed measures would help in reducing food inflation and income inequality next year.
Cutting tax on procurement of food-grains, potatoes and some other essential commodities, restructuring excise-duty slab for the well-off, upward adjustment of higher tax slab for people having annual income of Tk 3.85 million and above are the measures they cited.
Dr Masrur Reaz, Chairman of the Policy Exchange Bangladesh, suggests the budget must be relatively contractionary or less expansionary to contain inflation by way of curbing unnecessary spending.
"Concerted effort is required aligning monetary and fiscal policy to contain inflation and rein in deficit in the budget," he says.
Also, the government can consider tax relief or rebate on the essential commodities consumed by low-income people or upward adjustment of tax-free ceiling.
In the budget, the government would keep tax threshold for individual taxpayers unchanged at Tk 350,000 for general taxpayers, for women and senior citizens aged 65 years and above Tk 400,000, physically challenged persons Tk 475,000, war-wounded gazetted freedom fighters Tk 500,000, and for third gender Tk 475,000.
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