Budget FY27: Tax relief on the cards for essential goods, agricultural products

The government is set to propose tax relief measures on essential goods and agricultural products in the proposed budget for FY27 to curb inflation and reduce the cost of living.

In a major pro-people initiative aimed at improving the living standards of individuals and households across the country, the government will propose a reduction in withholding tax on 60 essential commodities.

The proposal may bring down the advance tax rate on key agricultural and consumer goods such as rice, wheat, potatoes, livestock, poultry, fish, onions, garlic, ginger, salt, sugar, edible oil and seeds from 5%, 2% and 1% to only 0.5%.

The government considers this measure likely to provide relief to citizens, in the context of persistent increases in the prices of essential commodities over recent years, and views it as being aligned with its electoral commitments under a democratic administration.

Several additional reductions in withholding tax have also been proposed to ease the burden on the general public.

These are likely to include a complete exemption of the 5% advance tax on the import of kidney dialysis filters. For 15 products used by persons with disabilities, the advance income tax rate is set to be reduced from 2% to 1%.

To formalise the gold and jewellery trade, which has remained largely informal due to high withholding tax rates, the tax rate on gold and jewellery supply is set to be reduced from 5% to 0.5%, with the aim of increasing government revenue collection.

To promote environmentally friendly transport systems, withholding tax on the import of electric buses, electric trucks and electric charging stations is likely to be fully exempted.

In the ICT sector, the advance tax on imports of computer printers, portable automatic data processing machines, flash memory and computer monitors is set to be reduced from 5% to 2%.

The advance tax rate on imports of 22 raw materials used by local mobile phone manufacturers is also set to be reduced from 5% and 2% to 1%.

The withholding tax rate on electricity purchased from power producers is set to be reduced from 4% to 3%, while the rate on fuel oil supply by refineries is set to decrease from 1.5% to 1%.

Similarly, the tax rate on recycled products and recycling raw materials is likely to be reduced from 3% to 1%.

The 20% withholding tax on revenue sharing, licence fees and charges received by the Bangladesh Telecommunication Regulatory Commission (BTRC) is set to be withdrawn.

The withholding tax rate in the mobile network service sector is also set to be reduced from 12% to 10%.

In the industrial sector, the general advance tax rate on imported raw materials is set to decrease from 5% to 4%.

To support foreign investment, the withholding tax rate on payments made to non-resident taxpayers for machinery rental is set to be reduced from 15% to 7.5%.

In the insurance sector, withholding tax on reinsurance premium payments to non-resident taxpayers is likely to be reduced from 10% to 5%.

In order to reduce the cost of capital for industrial investment, withholding tax on interest payments on foreign loans is set to decrease from 20% to 10%.

The government believes these measures are likely to improve cash flow in businesses, reduce consumer prices, lower production costs and ultimately encourage increased investment in industry and trade.

It is also set to be decided to treat withholding tax as advance tax rather than minimum tax.

The budget proposal notes that previously, even taxpayers with low taxable income were required to treat withheld tax as a minimum obligation, which created liquidity pressure for businesses.

This provision is set to be repealed, and international practice of treating withholding tax as advance tax is likely to be introduced.

Any excess tax paid is set to be refunded, thereby ensuring greater fairness in the tax system.

The budget proposal is set to emphasise that tax policy is to be proposed not only as a revenue collection tool but also to support food security, energy security and environmental protection.

In this context, to increase edible oil supply in the country, the government may propose a full tax exemption for the first five years for edible oil production using locally sourced oilseeds, followed by a 50% exemption for the next three years and a 25% exemption for the subsequent two years, providing a total incentive package for ten years.