Tax-free income ceiling to be raised, slabs restructured

Highlights: 

• Tax-free income ceiling to be raised by Tk25,000 to Tk3.75 lakh
• Minimum tax for individuals could rise from Tk3,000 to Tk5,000
• Taxpayers in the 5% tax bracket will see their tax burden increase
• Individuals with income exceeding Tk35.75 lakh will fall under the 30% tax bracket

While the government plans to offer a minor concession to marginal taxpayers by raising the tax-free income threshold by Tk25,000 to Tk3.75 lakh, nearly all other taxpayers are set to face increased tax burdens in the upcoming national budget, according to officials concerned.

Finance Adviser Salehuddin Ahmed is scheduled to present the national budget for 2025-26 on Monday (2 June).

The minimum tax for individuals currently paying Tk3,000 and Tk4,000 could rise to Tk5,000. Furthermore, lower-income taxpayers, particularly those currently benefiting from the 5% tax bracket, will see their tax burden increase as this concession is set to be removed from the next fiscal year.

Minimum tax may rise to Tk5,000 for individuals, Tk1,000 for new filers

High-income earners will also face steeper taxes. Consequently, despite a marginal increase in the tax-free income limit, the overall tax pressure on taxpayers is expected to intensify.

These proposed tax rates are likely to remain in effect for the next two years.

Currently, annual income up to Tk3.50 lakh is tax-exempt. The subsequent Tk1 lakh of income is taxed at 5%. Under the current system, someone with an annual income of Tk4.5 lakh would pay Tk5,000 in tax. However, under the new proposals, for the same income, they would have to pay Tk7,500. This increased tax is due to a 10% tax on the remaining Tk75,000 after the Tk25,000 increase in the tax-free limit.

Furthermore, under existing rules, individuals whose annual income exceeded Tk38.5 lakh were subject to a 30% income tax on the remaining income. However, the new proposal suggests that an individual will fall under the 30% tax bracket once their income exceeds Tk35.75 lakh. This removal of an existing benefit could result in an additional tax burden of approximately Tk82,500 for a taxpayer.

Snehasish Barua, a tax expert and managing partner of Snehasish Mahmud and Company, a chartered accountant firm, told TBS, "The proposed Finance Ordinance 2025 is a punch to the gut for compliant salaried taxpayers. Already squeezed by inflation, they're now facing a higher tax burden instead of relief."

He added, "This will either force struggling businesses to increase salaries, or leave employees further burdened. We should be cracking down on tax dodgers, not penalising those who play by the rules."

Currently, Bangladesh has approximately 1.15 crore Taxpayer Identification Number (TIN) holders. Of these, 45 lakh submitted tax returns last year. Two-thirds of these, approximately 30 lakh, submitted "zero returns," meaning only about 15 lakh taxpayers actually paid tax with their returns.

The new tax rates, applicable to income earned in the upcoming fiscal year 2025-26, will be payable in the subsequent tax year, FY27. According to the proposed tax rates, the tax-exempt limit for women and senior citizens will be Tk4.25 lakh; Tk5 lakh for persons with disabilities; Tk5.25 lakh for war-wounded freedom fighters and "July fighters," and Tk5 lakh for third-gender individuals.

For general individuals, after the Tk3.75 lakh tax-free income, the next Tk3 lakh will be taxed at 10%, the subsequent Tk4 lakh at 15%, the following Tk5 lakh at 20%, the next Tk20 lakh at 25%, and any remaining income will be taxed at 30%.