Govt extends VAT exemptions to support industries, mitigate public health concerns

The government has proposed a range of VAT exemptions and adjustments in the budget for FY2025–26, aimed at supporting local industries, reducing production costs, and addressing public health concerns.

The national budget of Tk7,89,999 for FY26 was announced by Finance Adviser Salehuddin Ahmed via a pre-recorded speech telecast today (2 June).

Among the key measures, raw material imports for sanitary napkins and diapers will remain exempt from VAT until 30 June 2030.

The move is intended to ensure the affordability of essential hygiene products for women and children.

Similarly, materials and spare parts used in the manufacturing of hospital beds will be exempt from VAT for the same period. 

The measure is expected to help reduce the cost of healthcare infrastructure.

In order to ensure improved medical care in the country, customs duties have been reduced on the import of machinery and equipment for the establishment of referral hospitals as well as all hospitals with more than 50 beds.

Medical assistance benefits for employees have also been expanded. Previously applicable to treatments for kidney, liver, cancer, and heart diseases, tax exemptions will now also cover expenses for brain surgery and artificial organ transplants.

To support the pharmaceutical sector, VAT exemption on Active Pharmaceutical Ingredients (APIs) has been extended until June 2030. This is likely to benefit local drug manufacturers and keep medicine prices in check.

In the electronics and assembly sectors, the government has slightly reduced but extended the existing VAT exemptions on mobile phone production and assembly until June 2027. This includes raw materials for anti-cancer drugs and APIs.

A similar approach has been applied to lifts, LPG cylinders, washing machines, microwave ovens, electric ovens, and common kitchen appliances such as blenders, kettles, irons, and rice cookers. These exemptions will now continue through June 2030.

The automotive sector is also set to benefit. VAT exemptions will continue for locally manufactured vehicles, including hybrids and electric models, as well as general and ICU ambulances, though subject to conditions. Four-stroke three-wheelers will retain VAT support until 2030, but with some reductions.

In the personal care segment, VAT relief on raw materials for soap and shampoo (LABSA and SLES) has been slightly reduced but extended until June 2027.

For emerging technologies, the government has introduced full VAT exemption for the production of lithium and graphene batteries until 2027. From 2028 to 2030, producers will still benefit from a 5% VAT reduction. E-bike manufacturers will also enjoy an additional 5% VAT exemption until 2030.