IMF for raising minimum tax rate, businesses push back
In Bangladesh, companies are subject to a minimum tax ranging from 1% to 3%.
Highlights
- The minimum tax is non-refundable, payable even if companies make losses
- Businesses warn this pushes their effective tax rate up to 50% or more
- Corporate tax rate was cut to 27.5%, but firms say the minimum tax cancels out benefit
- The FY26 budget already raised the rate from 0.6% to 1% for most companies
Ahead of the release of its sixth loan tranche, the International Monetary Fund (IMF) has proposed increasing the rate of minimum tax for business in Bangladesh — a mandatory, non-refundable tax deducted at source in advance, regardless of whether a company makes a profit or not.
However, businesses have long opposed this tax, saying that since it cannot be refunded even when they make losses, it raises their overall effective tax burden despite a lower official corporate tax rate.
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Although the government has reduced the corporate tax rate to 27.5% in recent years, business leaders claim that because of the minimum tax, the effective tax rate for some companies rises to as high as 50% or even more in certain cases. They believe this poses a significant barrier to attracting foreign investment.
The IMF's conditions are linked to a $4.7 billion loan it is extending to Bangladesh in tranches. So far, about $3.65 billion has been disbursed in five tranches.
A senior official of the National Board of Revenue (NBR) told TBS, "The IMF has proposed increasing the minimum tax. However, since it was raised substantially in the last budget [current FY26], we will examine whether there is any further scope to increase it."
Another official said that a major jump in the minimum tax rate was introduced in the budget — with the rate raised from 0.60% to 1% for most of the companies, and for individuals with annual transactions exceeding Tk3 crore, from 0.25% to 1%.
"Therefore, it's difficult to say at this point how much room remains for another increase," the official added.
According to sources, the revenue authority has already sent the IMF a list of the policy and administrative measures it has taken to boost revenue collection and ensure compliance, along with plans for upcoming initiatives. An IMF delegation is expected to visit Bangladesh later this month to assess these measures, during which the issue may be discussed in detail.
Debabrata Roy Chowdhury, director of Nestlé Bangladesh Limited, told TBS, "The minimum tax system contradicts the core spirit of taxation. Tax should only be levied when there is taxable income. Since the minimum tax is non-refundable, many companies that earn low profits are deprived of the opportunity to pay less tax, which increases their effective tax rate."
"If the rate is raised further, it will put additional pressure on companies and raise their effective tax burden even more," he warned.
He added, "The NBR should focus on ensuring compliance and collecting tax based on actual income."
The IMF approved a $4.7 billion loan programme on 30 January 2023. One of the key conditions of the loan is to increase the tax-to-GDP ratio, alongside major reforms in the banking and broader macroeconomic sectors.
However, instead of increasing, the tax-to-GDP ratio has fallen. NBR chairman Abdur Rahman Khan said that, in FY2024–25, the ratio declined to 6.6% from 7.4% in the previous fiscal year.
According to NBR data, revenue collection in FY2024–25 stood at Tk3,62,797 crore, of which Tk1,25,485 crore came from income tax.
Data from the research organisation Business Initiative Leading Development (BUILD) show that around 87% of income tax collected during the fiscal year came from tax deduction at source (TDS), while only 0.24% of the total income tax collected was refunded.
Currently, a significant portion of tax deducted at source (TDS) is non-refundable and treated as minimum tax.
In Bangladesh, companies are subject to a minimum tax ranging from 1% to 3% of their annual turnover, depending on the type of business.
Tax expert Snehasish Barua, a partner at Snehasish Mahmud & Company Limited, told TBS, "Although the Finance Ordinance 2025 brought a new scope for the adjustment of minimum tax in future years, businesses might not reap the benefit easily in the near future unless their profitability increases substantially."
He added, "Corporates and sole proprietors will already end up with an additional tax burden due to the increase of the minimum tax, which will ultimately be passed on to the consumer as an indirect tax in the disguise of a direct tax. Hence, a further increase in the minimum tax rate will only add insult to injury."
