How new tax structure will squeeze the middle class

The national budget for fiscal year 2026-27 reveals the scale of the country's fiscal dilemma. On the one hand, the government is offering tax relief to ease inflationary pressures and reduce the cost of doing business. On the other, it has set an ambitious revenue collection target of Tk 6.04 trillion for the National Board of Revenue (NBR), nearly Tk 1 trillion higher than the target for the outgoing fiscal year. Moreover, as revenue collection is running far below target, the NBR will need to increase collections by around 50 per cent over this year's actual receipts to meet its target for next fiscal, starting from July 1. Whether such a dramatic increase is realistically attainable remains open to question. However, the target itself creates pressure for more aggressive revenue mobilisation through stricter enforcement and policy adjustments. Given Bangladesh's persistently narrow tax base, which successive governments have failed to broaden meaningfully, it is feared that the burden could ultimately fall on the already compliant, taxed and inflation-hit segments of the population and businesses.
This policy paradox is evident in the new tax structure, where tax-free income threshold has been raised by Tk 25,000 from existing 3.5 lakh, which the authorities claim will provide some relief to taxpayers amid persistently high inflation. However, the lowest tax slab of five per cent has been abolished and replaced with a 10 per cent rate. As a result, many taxpayers will ultimately face a higher overall income tax burden despite the proposed increase in the tax-free income threshold.
Moreover, the new tax structure is likely to place a disproportionately heavier burden on lower- and middle-income earners than on higher-income taxpayers. An analysis by SMAC Advisory Services Ltd shows that an individual earning around Tk 74,000 per month would face a 49 per cent increase in tax liability under the proposed structure, whereas someone earning Tk 250,000 or more per month would see an increase of only about 10.5 per cent. At a time when ordinary households are already struggling with inflation and stagnant purchasing power, such disparities raise questions about the equity and fairness of the proposed tax measures.
The burden on taxpayers is further compounded by changes to investment-related tax incentives. Under the existing system, taxpayers can claim a rebate equal to 15 per cent of eligible investments, subject to a maximum investment limit of 20 per cent of taxable income or Tk 6.67 million, whichever is lower. The proposed Income Tax Act 2027 increases the eligible investment ceiling to 30 per cent of taxable income but reduces the rebate rate from 15 per cent to 10 per cent. It also lowers the maximum annual tax rebate from Tk 1 million to Tk 750,000. As a result, taxpayers will receive Tk 5,000 less in tax relief for every Tk 100,000 invested. Although the proposal allows a larger share of income to be invested in eligible instruments, the lower rebate rate will diminish the tax-saving benefit of such investments for many taxpayers. The changes are likely to affect salaried employees in particular and discourage savings.
The proposed budget worth Tk 9.38 trillion has been widely praised for prioritising healthcare, education and social protection. The challenge however lies in revenue collection. Many argued that revenue targets should have been set realistically, taking into account the economy's current weaknesses. Under these circumstances, greater emphasis should have been placed on reducing wasteful expenditure and improving the efficiency of public spending. Failure to meet overly ambitious targets could force the government to rely more heavily on bank borrowing, crowding out private-sector credit and slowing investment. In the worst case, persistent fiscal shortfalls could increase pressure for monetary financing of deficits, adding further fuel to inflation.
There are indeed scopes for significantly boosting revenue collection. Recent data show that Bangladesh's revenue collection has not kept pace with economic growth over the past decade, indicating substantial untapped potential. Experts have identified several structural weaknesses behind the country's poor revenue performance. These include corruption and inefficiency within the tax administration, the failure to identify and bring new taxpayers into the system, and the absence of a unified digital platform linking income tax, VAT and customs authorities. Comprehensive digital integration of tax administration could significantly reduce tax evasion, improve compliance and broaden the tax base without placing additional burdens on existing taxpayers.
The finance minister's budget speech outlined several measures aimed at expanding the tax net and automating revenue collection, which is welcome. However, the minister mentioned nothing about the much-anticipated reform of the National Board of Revenue (NBR), particularly the move initiated by the interim government to separate tax policy formulation from revenue collection and enforcement. Critics have long argued that the NBR's dual role as both policymaker and enforcer creates an inherent conflict of interest, which serves as a potent source of irregularities and corruption that plague the revenue administration.
The question, therefore, is not whether tax revenue should increase, but how it should be raised. Will the government boost revenue by curbing tax evasion among wealthy individuals and businesses that are often politically difficult to tax, or will it continue to squeeze those already within the tax net and easiest to tax? Will higher revenue come from broadening the tax base or from greater reliance on indirect taxes, which disproportionately affect lower- and middle-income households? A wider and more equitable tax base, along with an efficient and corruption-free revenue department, could strengthen fiscal stability while reducing distortions in the economy.
That said, the budget contains several measures aimed at easing inflation. Source taxes on nearly 60 agricultural and essential commodities, including rice, wheat, flour, edible oil, sugar, fish, meat, onions and ginger, have been reduced. Existing rates of five per cent, two per cent and one per cent will be lowered to just 0.5 per cent. If these reductions are reflected in retail prices, they could help moderate inflation and provide some relief to consumers. However, the benefits will materialise only if strict market monitoring ensures that lower tax costs are passed on to consumers rather than absorbed as additional profit by intermediaries.

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