NBR mulls taxing political parties, ending some exemptions for ministers, MPs

Highlights 

• Govt mulls revoking certain tax benefits for judges, PM as well 
• The move aims at establishing tax equality in the country 
• Such an announcement is expected in next national budget
• It will be in line with the task force's recommendations
• Finance adviser and chief adviser will take the final decisions

Political parties, which have enjoyed tax exemptions for years, are likely to come under the tax net from next fiscal year, according to sources at the National Board of Revenue (NBR).

Additionally, to establish tax equality, the government is considering revoking certain tax benefits for judges, as well as the prime minister, ministers, and members of parliament.

An announcement is expected in the upcoming national budget, in line with the recommendations of the NBR's task force committee made earlier this month on bringing political parties under the tax net, an official told The Business Standard.

The official, who spoke on condition of anonymity, said, "The task force has recommended that several existing tax exemptions be scrapped.

"A large part of their recommendations may be implemented in the next budget. As part of this, there is a plan to remove tax exemptions for political parties."

However, the official said the final decision on these matters will be made by the financial adviser and the chief adviser.

The task force's recommendations, a copy of which was seen by TBS, state that the unconditional exemption of political party income has undermined accountability, enabling money laundering, black money legalisation, and fostering allegations of corruption.

Experts view the government initiative as positive, noting that for years, political parties' income and expenditure accounts have been opaque, with the figures submitted to the Election Commission bearing little relation to reality.

Iftekharuzzaman, executive director of Transparency International Bangladesh, told TBS, "Imposing taxes on political party income would be logical. There should also be a system to accurately track their income, expenditure, and sources."

He said, "Their accounts are opaque. They submit nominal annual audited reports, but the actual income and expenditure details are missing, with no supporting documents. Their reported figures don't reflect reality."

M Masrur Reaz, a former senior economist at the World Bank, told TBS, "To ensure good governance and accountability among political parties, they must be subject to taxation."

According to EC data, there are currently over 50 registered political parties in Bangladesh. Since the fall of the Sheikh Hasina-led Awami League government on 5 August, new parties, including the National Citizen Party (NCP), have been formed under student leadership. Several other new parties have also gained registration.

Following the formation of the NCP, questions have been raised about the source of funding for its grand iftar parties and extravagant showdowns by some party leaders in their hometowns. The party has not clarified where the money for these expenses came from.

Other major political parties also spend large sums of money on various programmes, yet there is no accurate information about the source of these funds.

The Awami League, which had been in power for more than a decade and a half, reported the highest income.

According to the accounts submitted to the EC, the party's income in 2023 was over Tk27.15 crore, while its expenditure was over Tk9.87 crore.

The party's income sources include monthly member subscriptions, donations, sale of nomination forms, rent, and bank interest, among others.

On the other hand, the BNP submits its income and expenditure accounts to the EC annually. For 2023, its income was Tk11.08 crore, while its expenditure was Tk36.5 crore.

However, experts argue that the large expenditure programmes of political parties, particularly the ruling party, throughout the year are inconsistent with this income information.

How accountable can influential figures be made?

The question arises: how strict can the tax department be with ruling political parties even after tax exemptions are removed? In Bangladesh's political culture, the ruling party is often above accountability, with past examples of using taxes as weapons to punish the opposition.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told TBS, "In the past, income tax has sometimes been used to create trouble for opposition parties, but this has typically been at the individual level, not for parties.

"If political parties come under tax, it will eventually reveal irregularities in their income and expenditure, increasing accountability."

A member of the NBR task force, speaking anonymously, said, "Being taxed means being legally bound, and as a result, parties will have to be held accountable."

Tax benefits may also be reduced for ministers and MPs

Currently, the prime minister, ministers, MPs, chief justice, and Supreme Court judges are exempt from paying tax on any income or benefits other than their basic salary and honorarium.

In contrast, private employees and ordinary citizens are required to pay tax on allowances in addition to their basic salary.

The task force proposes bringing festival allowances, in addition to the basic salary and honorarium, of the prime minister, ministers, and MPs under taxation to ensure tax equality.

It also suggests taxing honorariums and festival allowances for judges. The NBR's Tax Policy Department plans to reduce these exemptions in the next budget, as a condition for receiving loan instalments from development partners, including the IMF. Exemptions will need to be reduced across several sectors next year.