Tax-free income limit may rise to Tk 3.75 lakh

The government is likely to offer modest tax relief in the upcoming national budget, with plans underway to raise the tax-free income limit for individual taxpayers from the current Tk 3.5 lakh to Tk 3.75 lakh. This move comes as part of broader efforts to ease financial burdens amid prolonged high inflation, which has persisted above 9 percent for over two years, eroding the real income of many citizens.

According to finance ministry sources, the proposal will be placed before Finance Adviser Dr. Salehuddin Ahmed on May 15 and later forwarded to Chief Adviser Professor Muhammad Yunus ahead of the FY2025–26 budget announcement, scheduled for June 2. A senior official involved in budget planning noted that the goal is to offer some economic breathing room, especially for lower and middle-income earners grappling with rising living costs.

Last year, the government raised the tax-free threshold by Tk 50,000, and this year’s proposed increment continues that trend. Policy groups such as the Centre for Policy Dialogue (CPD) and business bodies like the FBCCI have advocated for a larger increase-some recommending a threshold of up to Tk 4.5 lakh-to reflect current economic realities.

Besides this, the government may also relax some tax compliance rules. One such move could double the investment threshold for savings instruments-from Tk 5 lakh to Tk 10 lakh-before requiring proof of income tax return filings. This aims to encourage investment, particularly from low- and middle-income groups. Currently, proof of return is needed for accessing up to 45 services, and the government is considering easing this for first-time business license applicants.

However, the upcoming budget is unlikely to extend existing tax exemptions or reduced rates for businesses. As part of the conditions tied to the ongoing $4.7 billion IMF loan program, the government is committed to gradually phasing out such benefits. For example, a tax break for textile exporters that began in 2022 is set to expire this June. On the other hand, the RMG sector will retain its reduced corporate tax rate until 2028 under a pre-agreed sunset clause. Other sectors like poultry, fisheries, and jute might see a slow rise in tax rates, which currently hover between 5 and 15 percent.

Economist Fahmida Khatun from the CPD welcomed the potential tax threshold hike and increased savings investment limit, calling it a necessary, if modest, response to economic stress. However, she emphasized that for sustained fiscal health, the government must broaden the tax base and combat widespread evasion.

The National Board of Revenue reports that while around 1.6 million taxpayers filed online returns this year, nearly two-thirds declared zero income, and about 65 percent of TIN holders did not file returns at all. Fahmida stressed that public trust in tax spending must be rebuilt through transparency and better service delivery.