NBR mulls to re-impose tax on outlived economic objectives

The National Board of Revenue (NBR) is considering withdrawal of tax exemptions for sectors that have failed to meet their intended objectives or contribute substantially to the economy.

A tax expenditure report, published in NBR website on Wednesday (8 May 2024), recommends that "it is important to identify tax expenditures that are not achieving their intended policy goals."

The report also suggested eliminating exemption for individuals or sectors which are no longer relevant with the governments objectives for exemptions.  
"Eliminate or a sunset provision of such expenditure measures can free up government revenue and also simplify the tax code," the report reads.

An NBR official closely associated with the report said, "We are considering reducing some exemptions from next fiscal year." He also said, "By reducing exemption facilities, we want to collect an additional Tk1,000 crore, a proposal that we have already discussed with the visiting IMF team."

Currently, over a hundred sectors (inclusive of individuals) including remittance, salary, share capital gains, power and energy, economic zones, hi-tech parks, dividends, agribusiness, interest on savings certificates, capital gains from asset transfers, export sectors, IT, and education, enjoy tax exemptions.

As per terms of IMFs $4.7 billion loan package, NBR is pledge-bound to raise tax-GDP ratio by 0.5 percentage points in the upcoming budget. While the lending agency approved the loan package, it also has put some conditions including rationalisation of tax expenditure.

During the last two weeks, the visiting IMF team held meetings with NBR officials and recommended reduction or withdrawal of tax exemptions from as many sectors.  

Although the NBR report did not identify the sectors which were ineffective or failed to meet the governments objective for exemptions, experts have welcomed the initiative. Dr Syed Md Aminul Karim, former NBR member on income tax policy said, "It is logical that sectors which failed to fulfill government intended economic, social or other objectives of exemption, should be removed." "Ready-made garment sector enjoyed a bunch of tax benefits for over 4 decades and at that time, the facility was logical. But now, its not logical to provide the same facility to them forever," he added.

He further said, "Some sectors, including non-government organisations and manufacturing sector, are misusing the governments tax exemption facility. "Some sectors also misuse the tax benefits and they should be identified."