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Government revenue shortfall could soar to Tk 1.05 trillion at the end of this fiscal year even after factoring in the potential sources to boost collection, says the CPD about state of the outgoing fiscal while drawing next national budget's outlook.
The Centre for Policy Dialogue (CPD) mentioned Sunday that the revenue collection grew by just 4.4 per cent between July and December in the financial year 2024-25.
"To meet this fiscal year's revenue target, collection needs to be increased by more than 55 per cent in the remaining period, which is virtually impossible even after considering all potential sources," CPD Executive Director Dr Fahmida Khatun told a media briefing on recommendations for the FY26 national budget of Bangladesh at its office in the capital.
She made several recommendations and observations regarding the fiscal and economic challenges. She emphasised the National Board of Revenue (NBR) must undergo modernisation, leveraging the latest technology, to establish a hassle-free tax system.
The CPD proposed raising the tax-free income threshold to Tk 400,000 from the current Tk 350,000 in the next budget, citing high inflation and the fact that many people are now withdrawing funds from savings to cover daily expenses.
Dr Khatun said the highest income-tax rate should be raised to 30 per cent from the existing 25 per cent.
She also expressed scepticism about the central bank's expectation of lowering inflation within this fiscal year, warning that multiple risks - including US President Donald Trump's tariff wars - could complicate economic stability.
The CPD suggests that income tax should be prioritised, while the dependence on indirect taxes, such as VAT, should be reduced. It proposes lowering the VAT rate to 10 per cent from the existing 15 per cent, which may help reduce tax evasion.
To support the growth of small and medium enterprises (SMEs), the think- tank recommends they be nurtured and granted bonded-warehouse facilities for raw-material imports.
About further dos in the next budget it also says bonded-warehouse licences should be issued for longer terms as the current short terms create unnecessary administrative burdens for businesses.
Responding to questions from journalists, CPD Distinguished Fellow Dr Mustafizur Rahman said food and other essential commodities used to be controlled by a very small number of importers in the past, creating monopolistic market conditions. "Now, the supply base has expanded, which is a positive sign for the food-supply chain."
However, he stresses careful management is a must in the upcoming Boro season to ensure proper supply of fertilisers and other essential inputs, which would help secure a bumper harvest.
Addressing concerns raised by some quarters about seeking an extension of the least-developed country (LDC) graduation timeframe, Dr Rahman said Bangladesh can no longer step back as it has already met all three graduation criteria.
He reminds that Europe and Canada have assured Bangladesh of continuing to offer the same trade facilities for three years after its formal graduation in November 2026.
Dr Rahman emphasises this is the right time to take bold steps to reform the revenue structure. He also notes the NBR recently split its policy and implementation wings, which had often created conflicts of interest earlier.
The CPD executive director called for redefining the definition of "company" under its latest act as the current one includes both profit and non-profit organisations, leading the NBR to impose taxes on the latter unfairly. She highlights that budget-financing pressure is mounting as the fiscal deficit surged more than fourfold in the first half of this fiscal year, surpassing Tk 295 billion.
The policy think-tank cautions that GDP growth may fall short even of its revised projection of 5.5 per cent as the economy expanded by only 1.8 per cent during the July-September quarter of this financial year.
It also observes that Bangladesh's net foreign assets have declined, primarily due to reduced budgetary support from international sources, while net domestic assets have surged as the central bank fed funds to the struggling banks.
The CPD stresses the upcoming LDC graduation would require significant tax rationalisation to comply with the World Trade Organisation (WTO) rules.
"We believe the next budget should prioritise LDC graduation," Dr Khatun notes.
She forewarns that Bangladesh would face higher export tariffs in Europe and American economies in the post-graduation era and need to adjust domestic tariff protection for local industries.
Foreign borrowing sources would become more expensive, forcing the government to rely more on domestic sources, particularly the banking sector, she predicts. The CPD says the banking sector could come under pressure to finance budget implementation. It recommends customs duties, which remain excessively high, be rationalised.
The think-tank also has proposed phasing out cash incentives for export earnings, including in the ready-made garment sector, and offering in-kind support to enhance competitiveness on the global market.
It proposed allocating funds for the families of those martyred in the 2024 July-August movement.
The CPD deplores that Bangladesh, particularly Dhaka, often makes headlines for air pollution and urges the government to address this issue in the next budget with proper allocations and measures.
It also stressed focus on renewable energy and tackling plastic pollution.
The think-tank points out that Bangladesh and India share 54 common rivers and emphasises the need for bilateral discussions on reducing plastic pollution as waste thrown in one country often ends up in the other through rivers.
jasimharoon@yahoo.com