IMF deal: Finance minister to consult PM over tough conditions

Following a lack of consensus on several conditions during recent talks with the International Monetary Fund in Washington, Finance Minister Amir Khosru Mahmud Chowdhury is set to seek Prime Minister Tarique Rahman's guidance on the matter, according to ministry sources.

Sources in the finance ministry said the minister is expected to meet the PM this week, along with members of the delegation who attended the IMF meetings, to brief him on the discussions and decide the next course of action.

Further engagement with the IMF is likely to depend on that guidance.

A senior finance ministry official, speaking on condition of anonymity, told The Business Standard that the IMF has outlined its position on three major issues that Bangladesh is expected to implement from the next fiscal year: eliminating all forms of tax exemptions, withdrawing government subsidies, and allowing the exchange rate to become fully market-based.

While these conditions featured in negotiations with previous administrations, the IMF is now pressing the BNP government for a concrete implementation plan.

"There is a direct relationship between implementing these measures and an increase in consumer expenses. Therefore, decisions on these issues will have to come from the highest political level of the government," the official said.

"If tax exemptions are removed as per the conditions, the tax burden will fall on consumers, increasing costs and potentially fuelling inflation. Similarly, withdrawing subsidies will raise the prices of goods, further increasing expenses," the official added.

Sources at the NBR said its chairman, Abdur Rahman Khan, who attended the IMF meetings in Washington, held a meeting on Sunday (19 April) with senior officials to review the outcomes and explore ways to reduce tax exemptions and boost revenue collection.

According to the latest data published by the NBR for FY2022-23, the revenue board collected Tk3.25 lakh crore while granting tax exemptions worth approximately Tk2.75 lakh crore – nearly 85% of the total collection.

Meanwhile, in the current fiscal year (FY26), government spending on subsidies, incentives and cash support is estimated at Tk1.12 lakh crore.

Concerns over implementation

Given the prevailing economic landscape, economists argue that the new administration will find it challenging to overhaul all tax exemptions and subsidies, urging the government to adopt a more pragmatic approach.

Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), told TBS that the government needs to strike a balance.

"The government must increase revenue. However, it will be difficult to eliminate all exemptions at once. A realistic decision should be reached through discussions," he said.

Govt will not take loans from IMF by accepting all conditions: Khosru

"Tax exemptions exist not only in Bangladesh but also in other countries. These exemptions need to be rationalised. If all are removed at the IMF's insistence, it may create distrust among investors who have made investments based on government commitments," he added.

He suggested negotiating a two- to three-year timeline with the IMF. "Failure to reach an understanding with the IMF would send a negative signal. It may become difficult to secure loans from other development partners," Mustafizur added.

An NBR official told TBS that if IMF conditions are implemented, many existing exemptions would no longer be allowed. This could lead to the imposition of VAT on essential services such as agriculture, food, education and healthcare, raising costs for consumers.

Another senior NBR official warned that removing exemptions would bring several key sectors under the tax net, adding that even remittances could potentially be taxed.

Gradual reduction underway

Over the last three years, the NBR has been implementing a phased plan to curb tax exemptions, retaining them only for essential sectors and consumer-facing goods while introducing sunset clauses to ensure other incentives expire within a set timeframe.

In income tax, rates have been increased in sectors such as poultry and fisheries, effectively reducing exemptions.

Tax incentives for local manufacturing of products such as electronics, home appliances, mobile phones and semiconductors are also being gradually phased out, with timelines for full withdrawal outlined in last year's budget.

The standard VAT rate currently stands at 15%, and any lower rate applied to a sector is treated as a tax exemption.

To support export competitiveness, exporters benefit from reduced tax rates. They are exempt from import duties on raw materials and do not pay VAT on locally sourced inputs. Export-oriented firms are subject to a corporate tax rate of 12%, compared with 27% for non-listed companies.