Bangladesh's direct tax expenditure, a tax subsidy that includes rebates, exemptions, and reduced rates offered by the revenue authorities, fell 8 percent year-on-year to Tk 1.15 lakh crore in fiscal 2021-22, according to the tax expenditure estimation report.

The National Board of Revenue (NBR) released the report yesterday, showing that tax expenditure amounted to 2.9 percent of Bangladesh's gross domestic product (GDP) in FY22, down from 3.56 percent of the GDP in the previous year.

Several proposals were made for rationalising tax expenditure, such as limiting tax benefits enjoyed by hi-tech parks, disallowing depletion of allowances in petroleum and mineral extraction industries, and revising capital gain taxes, said the NBR.

The tax authority, which collects more than 85 percent of total annual taxes, also mentioned the phasing out of ineffective tax breaks and enhanced monitoring and reporting mechanisms for reduced tax expenditure.

The NBR said corporate income tax accounted for 62 percent of the total direct tax expenditures, followed by personal income tax expenditure at 38 percent.

The amount of tax benefits given to various sectors of the economy, including microcredit, power, and garments, stood at Tk 71,394 crore in FY22.

The NBR said 13 sectors accounted for 57 percent of the total tax expenditure, with seven sectors alone accounting for 49 percent of the total.

The highest tax expenditure or subsidy was given on capital gains at Tk 11,246 crore, followed by microcredit and social welfare at Tk 11,134 crore, and power and energy at Tk 7,611 crore.

In personal income tax, the highest exemption was given to remittance earners at Tk 11,709 crore. Tax benefits for salaried persons amounted to Tk 5,010 crore, while authorities gave Tk 2,414 crore worth of benefits to poultry and fisheries farmers.

Md Abdur Rahman Khan, secretary to the Internal Resources Division (IRD) and chairman of the NBR, said the tax expenditure report is expected to enhance fiscal transparency and budgetary accountability.

"This initiative is a significant step forward, not only strengthening policy design but also positioning the country to achieve its target tax-to-GDP ratio," he said.

"It marks an important milestone in the ongoing improvement of Bangladesh's tax administration, bringing greater precision and effectiveness to the system," he said in the report's preface.

The NBR emphasised that tax revenue was vital for meeting both the government's operational and development expenditures.

The NBR added that while tax expenditure serves as a policy tool for socioeconomic welfare and market stability, excessive tax expenditures must be tailored to Bangladesh's context.

As tax expenditures represent a significant loss of potential revenue, especially in developing economies like Bangladesh, a clear understanding of revenue forgone due to these expenditures is necessary for effective tax administration and policymaking.

The NBR began estimating and publishing tax expenditure reports from 2023 as a part of its efforts to measure revenue forgone in promoting industrialisation, job creation, and economic growth.

This initiative aligns with the conditions set by the International Monetary Fund (IMF) for a $4.7 billion loan approved for Bangladesh in January 2023.