Budget FY26: AmCham says increasing advance tax to 7.5% will be 'punishing for all businesses, customers'

Increasing the advance tax on commercial imports from 5% to 7.5% in the upcoming fiscal year 2025-26 (FY26) will be punishing for all businesses and customers, the American Chamber of Commerce in Bangladesh (AmCham) said in an immediate reaction to the budget proposal presented by Finance Adviser Salehuddin Ahmed today (2 June).

The chamber noted that the interim government has set a target of 5.5% GDP growth for FY26 while aiming to contain inflation and steer the economy toward recovery through reforms and amendments, according to a press statement issued to the media.

To this end, AmCham recommended prioritising fiscal health, adopting a contingency approach, and initiating policy reforms in key procedural areas.

Currency and growth control

While the target of 6.5% inflation and 5.5% GDP growth is a positive signal, AmCham said it appears overly ambitious under current economic conditions. Although strict policy measures have helped control inflation, they are also eroding savings and stifling investment growth.

The budget size has dipped to 12.65% of GDP. While reserves and remittance inflows have shown improvement, and revenue collection has slightly increased, the chamber stressed the need to simplify taxation and improve the tax-to-GDP ratio.

AmCham opposed the proposed increase in Advance Tax to 7.5%, warning it would burden both businesses and consumers, especially when VAT evasion remains unaddressed. The chamber also called for a reduction in the current high interest rate (13-15%) to spur growth.

Revenue reform, fiscal restraint

While stricter rules on asset legalisation are expected, AmCham expressed strong opposition to the proposal allowing the whitening of black money, saying it undermines transparency and encourages corruption.

The chamber recommended cutting unnecessary expenditures and deferring non-essential projects, noting that 57% of the budget is allocated to salaries, subsidies, and debt servicing – of which 22% goes to interest payments.

AmCham warned that growing reliance on indirect taxes and additional Advance Income Tax (AIT) raises equity concerns. However, it lauded the government's plan to reform the direct tax system, which it believes could significantly enhance domestic revenue and promote social justice.

The chamber also stressed the need for foreign loans with longer repayment terms to ease pressure on the economy, while warning that excessive local borrowing would crowd out private sector investment. It added that the budget lacks adequate measures to strengthen the capital market.

Structural reforms

AmCham welcomed the planned separation of the National Board of Revenue (NBR) into policy formation and revenue collection wings, calling it a positive structural step. However, it flagged the increased complexity in the Statutory Regulatory Orders (SROs) and called for urgent resolution.

The chamber appreciated proposed tax and duty reforms, as well as the digitalisation of company regulations and trade licenses. However, it emphasised the need to rationalise HS codes, fully automated customs clearance, and eliminate manual signatures to reduce bureaucratic delays. 

Sectoral allocations

Among the top 10 ministries and divisions, eight are receiving reduced allocations, while two – Secondary and Higher Education, and Road Transport and Highways – will see increases.

AmCham expressed concern over the downsizing of the Primary and Mass Education Ministry by around Tk5,000 crore. Meanwhile, the health sector has been allocated Tk41,908 crore, marking a notable increase.

Tax system modernisation

The NBR's revenue target of Tk4,99,000 crore reflects cautious optimism, AmCham said.

The introduction of an electronic platform for tax deduction at source, tighter VAT registration, curbed exemptions, a uniform 15% VAT rate, and broader digital tax filing will support the country's transition ahead of its LDC graduation.

A 30% income tax rate for high earners has been reintroduced, and VAT exemptions have been proposed for eco-friendly products. Manufacturers and importers of cold storage equipment, buses, paper goods, pharmaceuticals, cancer treatment devices, and green industries will also benefit.

Corporate tax

AmCham praised the reduction in annual turnover thresholds for small businesses – from Tk3 crore to Tk50 lakh – and welcomed tax changes for mobile operators as positive steps to stimulate business activity.

However, it warned that inconsistent policies, concerns over law and order, and exchange rate volatility are eroding investor confidence.

While the corporate tax rate for non-listed companies will rise to 27.5%, the 20% rate for listed firms remains unchanged. Merchant banks, meanwhile, may see a reduction from 37.5% to 27.5%, which the chamber views as a move to support the financial sector.

Sustainable employment and economic balance

AmCham highlighted that while rising remittance flows have helped the economy, a more calculated and sustainable approach is needed. Unemployment remains high, and private sector hiring continues to lag.

While public projects have created employment opportunities, AmCham called for more permanent, private-sector-driven solutions. The focus on the education sector is a step in the right direction, the chamber said.

Future-ready economy to meet global challenges

Bangladesh's edge in the global market lies in its infrastructure and trade, AmCham noted.

However, inefficiencies at Chattogram and other ports are hampering investment growth. The chamber stressed the urgency of addressing climate risks through targeted funding and incentives aligned with the country's "net zero" goals.

Given recent US tariff developments and the subsequent drop in exports, AmCham urged the government to prepare for potential risks once the current 90-day tariff pause ends.

Looking forward, the FY26 budget reflects several key considerations – Bangladesh's LDC graduation in December 2026, ongoing IMF loan conditions, and evolving trade dynamics.

AmCham called for bold structural reforms, better coordination of fiscal and monetary policies, simplified tax systems, and long-term employment strategies beyond public works.

Youth engagement has been prioritised, with Tk100 crore allocated for a "Youth Festival" and the loan ceiling for young entrepreneurs raised to Tk5 lakh to promote self-employment. These initiatives, AmCham said, could unlock the potential of Bangladesh's young population.

Execution is key

"Investing in this new Bangladesh is not a choice – it's an economic imperative," the chamber stated. By ensuring appropriate budgetary allocations to education, technology, energy, and health, the country can chart a path toward a more inclusive and sustainable future.

AmCham concluded by stressing that successful execution, measured in both quantity and quality, will ultimately determine the impact of the budget.