Tax-free income ceiling may go up in next budget

Highlights: 

• Tax-free income limit may rise by up to Tk50,000 in FY26
• Current threshold: Tk350,000 for general taxpayers
• Higher limits apply for women, seniors, disabled people
• Last increase was Tk50,000 in FY24

The National Board of Revenue (NBR) is considering a modest increase in the tax-free income limit in the upcoming budget, after two years, to provide relief to individual taxpayers amid high inflation.

According to NBR sources, the revenue authority is considering raising the limit by up to Tk50,000 for the fiscal year 2025-26. Currently, the tax-free income limit is Tk350,000 for general individual taxpayers, Tk400,000 for women and senior citizens (above 65 years), Tk475,000 for physically challenged persons, and Tk500,000 for war-wounded freedom fighters.

In the fiscal year 2023-24, the government increased the tax-free income limit by Tk50,000 from Tk300,000.

"We are planning an increase of Tk 25,000 to Tk 50,000. This proposal will be submitted to the finance adviser for approval before being incorporated into an ordinance," a senior NBR official told TBS on condition of anonymity.

"Considering persistent inflation, the NBR is proposing this change to provide relief to individual taxpayers," he added.

Over the past three years, Bangladesh has been grappling with high inflation, around 10%, which has eroded people's real incomes. According to the Bangladesh Bureau of Statistics, the country's inflation rate stood at 9.35% in March.

Given the situation, economists and business groups have called for an increase in the tax-free income limit.

In March, the Centre for Policy Dialogue (CPD), a leading think tank, urged the government to raise the limit by Tk50,000. 

Meanwhile, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the country's apex trade body, demanded an increase of Tk100,000 during a meeting held on 30 April. Other business associations, economic think tanks, have also advocated for a hike in the tax-free threshold.

"Given the current inflation and the decline in individuals' real incomes, we recommended increasing the tax-free limit by Tk100,000," said FBCCI administrator Md Hafizur Rahman during a recent meeting, where finance adviser Salehuddin Ahmed was present.

At present, beyond the tax-free threshold of Tk350,000, the tax rates are structured as follows: 5% on income for next Tk1,00,000, 10% on income for next Tk400,000, 15% on income for next Tk500,000, 20% on income for next Tk500,000, 25% on income for next Tk20,00,000 and 30% on the remaining income.

Professor Mustafizur Rahman, distinguished fellow at CPD, told TBS, "Over the past two years, inflation has risen by over 20%, but the incomes of most individuals — including salaried persons, informal sector workers, and low-income earners — have not increased at the same pace. As a result, real incomes have declined."

"So, the government should raise the tax-free income limit. If this happens, individuals — especially those with lower earnings — will get some much-needed relief," he added.