Another condition of the IMF to increase revenue collection is to eliminate all types of tax exemptions.
The exemption is to be withdrawn in three phases by July 1, 2027.
The process of withdrawing these exemptions has started. For example, the nominal tax for textile exporters has been removed and reverted to the previous position.
Furthermore, tariff-tax benefits have been withdrawn on many products. There is also a condition from the IMF to end the arbitrary power to grant tax exemption by abolishing Section 76(1) of the Income Tax Act, but this has not been done.
Over the last five decades, more than 200 notices have been issued to grant tax exemptions to various sectors. Although a committee was formed by the NBR to meet the IMF’s conditions, the recommendations of that committee have not been fully implemented.
Relevant persons believe that in a developing country like Bangladesh, completely removing tax exemptions is difficult for the development of industrial and service sectors.
Currently, there are mainly 10 VAT rates in Bangladesh: 15 percent, 10 percent, 7.5 percent, 5 percent, 4.5 percent, 4 percent, 2.4 percent, 2 percent, 1.5 percent and 0 percent.
Although the VAT Act specifies a 15 percent VAT rate, multiple VAT rates are in place to benefit different sectors. The IMF delegation had pressed for a single VAT rate during discussions with NBR officials before the last budget. The NBR has now started working on how to implement the single VAT rate.
The plan for management of rules in VAT and income tax areas was to be finalized by June 2024. It hasn’t been done yet. The plan was to create a medium and long-term strategy to increase customs-tax collections by December 2024; This has not been achieved yet. However, this is said to be an ongoing process.
Under IMF terms, the NBR enacted new customs and income tax laws.