With no political influence, it’s high time to restore tax justice

Summary:

• VAT Act 2012 faced delays due to business opposition, implemented with compromises.
• MPs enjoy duty-free car benefits while ordinary citizens face high import taxes.
• Political elites exploit tax exemptions meant for marginal farmers.
• NBR aims to cut tax exemptions, aligning with IMF guidelines.
• Experts see a chance to reform tax policies free from political pressure.

The Value Added Tax and Supplementary Duty Act was enacted in 2012, following recommendations from the International Monetary Fund (IMF) to impose a uniform 15% rate on goods and services. However, it couldn't be implemented until 2019 due to strong opposition from the business lobby, which cited concerns over inflation. The law was only enforced after the government reached a compromise with the apex trade body, agreeing to maintain multiple rates as before — a major deviation from the original legislation.

Last year, the National Board of Revenue (NBR), despite attempts, failed to curb the duty-free car benefits for members of the parliament (MPs). Finally, a minimal tax was imposed, but even that had to be withdrawn, facing criticism from lawmakers. While an ordinary individual has to pay up to 800% tax on car imports, MPs pay nothing at all.

Currently, the prime minister, ministers, and MPs are not required to pay taxes on any income beyond their basic salary and honorarium. Similarly, the chief justice and Supreme Court judges are exempt from taxes on benefits beyond their basic salary.

In contrast, private-sector employees and ordinary citizens have to pay taxes on allowances beyond their basic salary. Even government employees enjoy certain tax benefits compared to private-sector employees.

Influential figures, including politicians, often benefit from tax exemptions and reduced rates, with one notable example being the fisheries and poultry sectors. At first glance, this appears to be a positive government initiative.

The policy would be praiseworthy if genuine fish farmers could take advantage of it. Originally designed to support marginal farmers through tax relief, the scheme has instead been exploited. Politicians, business leaders, bureaucrats, and government officials — along with their families — have reportedly declared significant earnings from this sector.

Allegations suggest that this provision has largely been used to legitimise undisclosed income. While ordinary individuals face tax rates of up to 30%, earnings from fisheries and poultry are taxed at a maximum of just 15%, half the standard rate.

Election Commission affidavits indicate that many political leaders have reported incomes of hundreds of crore taka from fish farming. However, no thorough investigation has been conducted to verify whether these earnings genuinely stem from fisheries. Meanwhile, the NBR has sacrificed over Tk4,000 crore in tax exemptions for this sector.

Despite repeated criticism, the NBR has made several attempts to rein in excessive tax breaks for fisheries and poultry. However, reports suggest these efforts were blocked due to a lack of approval from the upper echelon of the former government.

Beyond this, the garment and textile sectors have long benefited from reduced tax rates. A significant number of MPs are directly or indirectly involved in the garment and textile business.

Additionally, key figures from the ousted Awami League government also had strong ties to this industry. It is widely presumed that their influence prevented any reduction in tax exemptions for the sector.

Recently, the task force committee to reform the Income Tax Act submitted a proposal to the NBR to reduce or eliminate 28 types of exemptions.

In multiple pre-budget speeches, NBR Chairman Abdur Rahman Khan has highlighted plans to scale back tax exemptions.

During a pre-budget discussion with the Economic Reporters Forum (ERF) on Monday (24 March), journalists proposed removing certain exemptions that could not be addressed under the previous government. In response, the NBR chairman stated, "We will make an effort (to remove some exemptions)."

At a meeting with retired tax officers, the NBR chief reaffirmed his commitment to tightening tax exemptions for individuals, as a new Tax Exemption Policy is in the making.

He made it clear that tax exemptions will be granted solely based on public interest, not individual benefits, and that only Parliament — not the revenue board — will have the authority to decide who qualifies for such exemptions.

According to NBR sources, as cited by news agency UNB, a total of 102 sectors currently receive partial or full tax exemptions. Of these, 40 apply to individual taxpayers, while the rest benefit companies, industries, or investments.

A study, referenced on multiple occasions, indicates that the NBR loses as much — or more — through tax exemptions as it collects in revenue in a given tax year.

To comply with the IMF's guidelines for the $4.7 billion loan package, the revenue authority is required to rationalise tax expenditures and achieve a 0.5% increase in the tax-to-GDP ratio by FY26. 

Additionally, the NBR has acknowledged widespread misuse of tax exemptions by unscrupulous businesses and individuals. While some exploit social welfare exemptions to legalise black money, others falsely declare income from fisheries or agro-farms to benefit from lower tax rates, concealing their actual sources of income. Some industries continue to secure tax breaks year after year through influence or unethical practices.

It is time to close these loopholes and curb the misuse of exemptions intended to promote local industries and encourage investment in targeted sectors.

Golden opportunity to close tax loopholes

Experts believe that with this year's budget being formulated free from political or business influence, the NBR has a "golden opportunity" to eliminate certain tax exemptions.

Syed Md Aminul Karim, a former NBR member (income tax policy), told TBS, "This is the best time to remove some tax exemptions that could not be implemented in the past due to political influence. This will not only boost revenue collection but also reduce disparities."

Citing an example of such influence, he pointed out that while PKSF enjoyed tax exemptions, SME Foundation, despite being a similar institution, was denied the same benefit.

According to the former NBR official, this was possible because the then-chairman of PKSF had close ties with the highest levels of the AL government. Notably, the same individual also served as the chairman of Dhaka School of Economics, which likewise received tax benefits.

The NBR's task force has recommended scrapping both of these exemptions.

Beyond these two institutions, several companies and privately established organisations, known for their close ties to the past government, also received substantial tax benefits. Some of these privileges have already been revoked.

The NBR appears to be heading in the right direction in streamlining tax administration and policies, aiming to ensure tax justice while also supporting business growth.

Its tax intelligence units are on high alert, scrutinising the bank accounts of individuals suspected of concealing large incomes under the guise of fisheries and poultry farming.

However, the NBR has assured that the upcoming budget will be business-friendly. The NBR chairman stated that certain advance taxes, such as minimum tax — which even loss-making businesses are required to pay — will have provisions for future adjustments when businesses make profits.

Finance Adviser Salehuddin Ahmed has said the upcoming budget for the 2025-26 fiscal year will drive out businesses' hesitation about making new investments.