United News of Bangladesh

At a time when the national economy is reeling under the combined pressures of high inflation, stagnant employment, investment crunches, and massive revenue deficits, the upcoming national budget for the 2026-27 fiscal is fueling deep concerns among lower- and middle-income groups over a looming ‘tax trap.’ Economists, business leaders, and civil society representatives have warned that while the government faces immense pressure to boost revenue collection, the burden is disproportionately falling on ordinary citizens. Meanwhile, effective actions against tax evasion, hidden wealth, money laundering, and outstanding dues by the wealthy and politically influential groups remain severely limited. Financial analysts identify Bangladesh’s overwhelming reliance on indirect taxes as the primary structural flaw of its revenue system. Currently, the bulk of revenue originates from Value Added Tax (VAT), source taxes, and import duties, which apply uniformly regardless of an individual's financial standing. Speaking at a roundtable discussion organized by the think-tank 'Voice for Reform', economists revealed that nearly 80 percent of total revenue collection in Bangladesh comes from indirect taxes. In sharp contrast, developed economies rely on direct taxes, such as income and wealth taxes, as their financial foundation. "The National Board of Revenue (NBR) hikes taxes precisely where VAT collection is guaranteed, but they are unwilling to take risks when it comes to collecting actual income tax," said Dr. Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD). This structure, experts argue, inherently accelerates economic disparity. Elite defiance and data fudging: The structural vulnerability is compounded by the regulatory failure to hold influential groups accountable. NBR data shows that while luxury vehicle owners and elites in affluent neighborhoods routinely conceal rental incomes and assets, visible legal actions are scarce, and billions in corporate tax defaults remain tied up in legal loopholes for years. Furthermore, trade-based money laundering executed through under-invoicing, over-invoicing, and informal hundi channels continue unabated, depriving the state of vital liquidity. "The influential classes always manage to exert control over the policymaking levels. Consequently, even when initiatives are taken to impose taxes on them, they are often rendered ineffective later on," noted former NBR Chairman Dr. Md. Abdul Majid. Budget-related sources indicate that the upcoming budget will likely propose new taxes or increase existing rates on a wide array of consumer goods and services. Targets include motorcycles, internet services, computer hardware, local LC commissions, agricultural imports, and raw materials for essential consumer commodities. Because manufacturers pass these tax hikes directly to consumers by adjusting commodity prices, public distress is projected to intensify. Persistent food inflation has already driven the cost of rice, pulses, oil, fish, and vegetables beyond the reach of many, forcing middle-class families to deplete savings, defer medical treatments, and slash educational expenses. The Ministry of Finance is currently preparing to approve a massive national budget of approximately Tk 9.38 lakh crore alongside an Annual Development Programme (ADP) of over Tk 3 lakh crore for FY2026-27. Defending the large fiscal footprint, Finance and Planning Minister Amir Khosru Mahmud Chowdhury stated, "Growth and employment generation are impossible without aggressive investment. Therefore, a large development budget has been adopted to pull the economy out of its fragile state." However, analysts label these targets as highly unrealistic. Dr. Debapriya Bhattacharya, another Distinguished Fellow at CPD, questioned, "Is the upcoming budget realistic, or is it based on miraculous projections?" He warned that setting unachievable targets when institutional implementation capacity is weak will only destabilize the macroeconomic environment. Dr. M. Masrur Reaz, an eminent economist, echoed these concerns, emphasizing that checking administrative expenditures is critical. "Simply expanding the budget is not enough; the quality of expenditure must be guaranteed. Unnecessary operating expenses must be strictly checked to ensure development benefits reach the grassroots," he said. In a bid to expand the tax net and alter its reputation of over-taxing compliant taxpayers, the NBR is planning rigorous door-to-door tax surveys in elite neighborhoods, including Gulshan, Banani, Baridhara, Dhanmondi, and Uttara in Dhaka, alongside Khulshi in Chattogram. Authorities will cross-match asset disclosures and lifestyles against submitted tax returns. The government has also set a targeted revenue collection goal of Tk 5,000 crore from wealth surcharges alone, supported by moving land mouza values closer to actual market rates to capture taxes from high-value real estate transactions. Mirroring these requirements, the political manifesto of the ruling BNP has also prioritized structural tax reforms. The party's platform identifies the political economy as the root cause of revenue stagnation and promises to curb evasion through a fully digital tax architecture, automated information exchange, and risk-based auditing. Industrial stimulus and healthcare relief To stimulate employment, the budget is expected to introduce time-bound industrial tax holidays equipped with "sunset clauses." Strategic sectors slated for incentives include Active Pharmaceutical Ingredients (API), agricultural machinery, automobile components, computer hardware, artificial intelligence technologies, robotics, and plastic recycling. On a positive note, the government is considering slashing duties on vital medical equipment, including cardiac stents (heart rings), kidney dialysis machinery, and pharmaceutical raw materials. With out-of-pocket healthcare expenditures currently exceeding 70 percent in Bangladesh, this move is anticipated to bring tangible relief to low-income patients. Conversely, sin taxes on tobacco and alcohol are projected to rise significantly. Ultimately, the overriding challenge for the government remains executing structural tax reforms that widen the direct tax base and curb illicit financial flows, rather than squeezing an inflation-weary middle class that is already buckling under historical economic strains.