The National Board of Revenue (NBR) concluded its pre-budget meeting with various stakeholders on 28 April 2026. BUILD presented its summary proposals at the NBR office, where the Chairman of the NBR, Mr Abdur Rahman, FCMA, and Board Members were present to respond to points raised by BUILD alongside other research organisations and think tanks.
BUILD’s presentation included proposals across income tax, VAT, and Customs; detailed budget proposals had been submitted to the NBR in advance. This meeting provided an opportunity for immediate feedback from the NBR, allowing the concerned organisations to understand which proposals are likely to be accepted.
BUILD noted that the first budget of the newly elected democratic government is being formulated amid numerous challenges. Following LDC graduation, the need to increase domestic resource mobilisation has grown significantly. In all NBR meetings held thus far, the emphasis has remained on enhancing tax revenue collection.
Conversely, business entrepreneurs have used these meetings to highlight specific areas where they require support. Although the NBR has initiated several important measures to improve revenue collection discipline, they have yet to yield a significant increase in revenue.
The previous budget stood at BDT 7.9 trillion, while the upcoming budget is expected to reach BDT 9.3 trillion—a 16% increase. Tax revenue, previously BDT 5.6 trillion, is expected to rise to BDT 6.8 trillion (+21%). It is vital to consider whether the economy has the capacity to withstand this pressure; like previous years, this budget may require substantial later revision. Efforts must focus on increasing the tax-to-GDP ratio through robust tax policy reform.
The upcoming budget is expected to pivot away from debt dependency and towards an investment-friendly climate. To achieve this, initiatives will be taken to simplify tax compliance and foster a business-friendly system. Anticipated changes include amendments to VAT law and the introduction of automated income tax refunds. The CEO of BUILD raised several recommendations to simplify the tax system and encourage compliance:
Macroeconomic and Policy Issues
- Harmonisation of Fiscal and Monetary Policy: According to the election manifesto (p. 28), fiscal and monetary policies should be harmonised. However, in the first nine months of the year, the government borrowed nearly BDT 100,000 crore from banks. With the policy rate and inflation both remaining above 10% for an extended period, liquidity has increased while monetary policy remains contractionary. Better coordination between budget projections and monetary policy is essential.
- High Interest Rates as a Barrier to Investment: Current lending rates range from 14–18%. Monetary policy data shows that private-sector credit growth has declined to 6.5%, while public-sector credit growth has climbed to 18.1%, despite a lack of significant large-scale development. As government expenditure on interest, salaries, and social safety nets rises, the budget must target a reduction in unnecessary spending. Subsidies to State-Owned Enterprises (SOEs) amounted to BDT 36,000 crore in FY 2025–26, further bloating operational costs.
Income Tax-Related Proposals
- Separation of Tax Policy and Tax Collection Authority: The private sector should be updated on the status of the directive to separate tax policy from collection authority. A clear decision should be featured in the FY 2026–27 budget. Under Section 4 of the Income Tax Act 2023, 15 positions currently combine these functions; the law should be amended to separate these roles with clearly defined responsibilities for field-level officials.
- Simplification of the Tax Collection System: Of 3.8 million taxpayers, only 0.76% (35,000) are corporate taxpayers. Within that group, 860 belong to the Large Taxpayers Unit (LTU), contributing BDT 4,062 crore—only 1.5% of total tax revenue. While 12.8 million individuals hold TINs, only 59% submit returns. Similarly, of the 288,000 companies registered with the RJSC, only 8.45% file returns. The reasons for this non-compliance must be investigated and the data updated.
- Refund Mechanism for Withholding Tax: The income tax law requires a clear provision for the refund of taxes deducted at source. Currently, withholding tax—collected under 111 sub-sectors—accounts for 63% of income tax revenue (rising to 85% when including all withholding). In FY 2021–22, refunds amounted to a mere 0.43% of total collections. The lack of an efficient refund system discourages compliance; rules must be formulated immediately to implement Section 215 (subsections 2 and 3).
- Reduction of Minimum Tax Scope: 43 of the 111 withholding tax categories fall under minimum tax provisions, contributing 38.63% of income tax revenue. As many are ineligible for refunds, they function as a final tax, increasing costs across supply chains and discouraging investment. These should be gradually replaced with refundable or adjustable mechanisms.
- Discretionary Power under Section 147: This section has increased discretionary power regarding withholding tax. Provisions should be added to ensure transparent procedures and proper notice before the inspection of business premises or records.
- Risk-Based Audit System: The NBR should move from random selection to a risk-based audit system. Taxpayers who have been compliant for over three years should be exempt from audits for at least five years, and top taxpayers should receive a three-year exemption.
VAT (Value Added Tax) Proposals
- Single VAT Rate of 10%: Multiple VAT rates currently exist alongside the 15% standard rate. Lower rates often disallow input credit, causing a cascading effect where effective VAT can reach 30%. A uniform 10% rate would reduce the burden and bolster compliance.
- Advance Tax Adjustment: Delays in adjustments and a lack of refunds reduce the competitiveness of industrial IRC users.
- Transparency in Withholding VAT: VAT deduction certificates should explicitly separate supply value and VAT to ensure transparency.
- Automation of the VAT System: Integrating IVAS modules and automating returns and invoices is necessary to build trust and reduce inconsistencies.
- Support for Women Entrepreneurs: Currently, VAT exemption for women entrepreneurs is BDT 3 million annually, while income tax exemption is BDT 7 million. These should be aligned. Furthermore, certain small sectors listed in General Order 17 of 2019 should be removed from mandatory registration to allow small-scale women entrepreneurs to benefit from turnover exemptions.
- Full Online VAT System: Implementation of automated returns, integration with ASYCUDA, and the introduction of e-invoicing are essential.
Customs-Related Proposals
- Expansion of SRO Benefits: Beyond the eight current industries, coverage should expand to include agro-processing, cement, API, home textiles, footwear, and light engineering.
- Tariff Rationalisation: Bound tariffs should be aligned with MFN (Most Favoured Nation) tariffs. Protective duties (SD, RD, AIT) should be gradually reduced following LDC graduation.
- Alternative Export Incentives: As cash incentives are phased out, alternative support—such as bonded facilities, research grants, and climate adaptation support—must be introduced.
- Sample Imports: Import rules for samples should be harmonised across all sectors, including RMG. Misclassification in ASYCUDA (IM7 vs IM4) results in unnecessary duties being applied.
- Alternative Dispute Resolution (ADR): The resolution timeframe should be reduced from 90 to 30 days, and associated fees should be lowered.