Govt plans to withdraw tax breaks for agro-based sectors in next budget

As part of the government's plan to phase out tax exemptions, the existing income tax benefits enjoyed by several agriculture-based sectors, including fisheries and poultry, are likely to be withdrawn in the upcoming national budget.

According to sources at the National Board of Revenue (NBR), the move will bring the incomes of fish and poultry farms, hatcheries, and feed producers under the regular tax rate of up to 30%, instead of the current reduced rates ranging from 3% to 15%.

Other sectors that are likely to be brought under regular tax rates include production of pelleted poultry feed, pelleted feed for livestock, shrimp and fish, seed production and marketing of locally produced seeds.

Livestock farms, dairy and dairy product farms, frog farming, horticulture, mulberry cultivation, beekeeping projects, silkworm farming, mushroom farms, and floriculture may also lose tax benefits.

Experts have welcomed the government's plan as a positive move but stressed the importance of safeguarding genuine farmers. They cautioned that raising taxes on producers of poultry, fish, and livestock feed could indirectly push up the prices of essential food items.

According to NBR sources, two statutory regulatory orders (SROs) that currently grant these tax breaks are under review and may be scrapped.

An NBR official, speaking on condition of anonymity, told The Business Standard, "As part of the move to gradually phase out tax exemptions, we are planning to withdraw the benefits currently enjoyed by these sectors. Once the SROs are scrapped, businesses in these sectors will have to pay tax at regular rates."

The official added that based on past tax exemption trends, lifting these benefits could generate an additional Tk3,000 crore in revenue.

He also mentioned that the NBR has prepared a proposal in this regard which is expected to be placed before the finance adviser on 15 May. The final approval is likely to come from the chief adviser ahead of the 2 June budget announcement, and enacted through an ordinance.

Currently, income from the mentioned sectors is taxed progressively – 5% on the first Tk10 lakh, 10% on the next Tk10 lakh, and 15% on any remaining income. In contrast, individual taxpayers are subject to a top tax rate of 30%, and most companies pay 27.5%.

The government had originally introduced the reduced tax rates to encourage investment in the country's fisheries, poultry, and livestock sectors. However, allegations have surfaced that this facility has been misused to legalise undisclosed income.

According to the NBR, in FY2020-21, the government granted tax exemptions worth Tk143 crore to companies and Tk2,985 crore to individuals in these sectors.

Sources claim that many individuals, especially influential politicians, bureaucrats, and businesspeople, have taken advantage of the reduced tax rates by showing large incomes from the fisheries sector as a way to whiten black money.

Tax intelligence officials are currently investigating over a hundred individuals who reported unusually high incomes from these sectors.

One such case involves former Dhaka South City Corporation Mayor Sheikh Fazle Noor Taposh, a relative of ousted prime minister Sheikh Hasina.

According to NBR, Taposh declared over Tk95 crore in income from the fisheries sector in just three years. He was removed from office following the political regime change in August last year.

Sources also claimed that previous attempts by the NBR to end these exemptions were reportedly blocked for unknown reasons.

Former NBR member and tax policy expert Dr Syed Md Aminul Karim welcomed the move, saying, "These sectors have enjoyed reduced rates for too long. It's time to bring them under the regular tax rate. This will also help curb the misuse of tax benefits for laundering black money."

Snehasish Barua, a tax expert and partner at Snehasish Mahmud and Company, echoed the sentiment. "According to the NBR's Tax Expenditure Policy Framework, the government must rationalise tax exemptions – there is no alternative," he said.

However, the tax expert emphasised the need to protect genuine farmers, suggesting limited concessions or safeguards.

Snehasish also warned that taxing feed producers at higher rates may raise the prices of poultry, fish, and dairy products, increasing pressure on consumers.