The government is weighing sweeping increases in tax at source on essential commodities and export cash incentives in the upcoming national budget, stoking fears of fresh inflationary pressure and a further blow to Bangladesh's already strained export sector.
Officials at the Finance Ministry and the National Board of Revenue (NBR) said a proposal is under active consideration to raise the source tax on local supply commissions from 0.50 percent to 1 percent in the FY2026-27 budget.
If approved, the measure would bring nearly 28 agricultural and essential commodities under a heavier tax burden, including rice, paddy, flour, wheat, edible oil, sugar, salt, pulses, potatoes, onions and garlic. Industry insiders warn that prices of processed foods linked to these products are also likely to climb.
Business leaders and market analysts cautioned that the additional costs would inevitably be passed on to consumers, intensifying the hardship already faced by low and middle-income households battling persistent inflation.
The proposed tax hike is also expected to raise operational costs throughout the supply chain, affecting wholesalers, restaurants and food-processing industries.
Imran Hasan, Secretary General of the Bangladesh Restaurant Owners Association, questioned the practicality of imposing source tax at the grassroots level.
"We purchase most agricultural products in cash from retail markets. In many cases, farmers and small traders do not have Taxpayer Identification Numbers (TINs) and are unfamiliar with tax procedures," he said. "As a result, source tax collection at that level is not effective. Imposing such taxes may only increase market distortions."
A senior Finance Ministry official, speaking on condition of anonymity, said the government is under mounting pressure to mobilise additional revenue amid widening fiscal deficits.
"The government urgently needs higher revenue collection. Increasing source tax is being considered because there are limited alternative options at this stage," the official said.
At the same time, the NBR is considering doubling the source tax on government-declared export cash incentives from 10 percent to 20 percent - a move expected to generate significant additional revenue for the state.
Officials estimate the government could collect around Tk 9,025 crore in extra revenue if export performance and current incentive structures remain unchanged.
Exporters, however, strongly opposed the proposal, warning that it could severely weaken the effectiveness of government support schemes at a time when businesses are already grappling with rising production costs, energy shortages and slowing global demand.
Bangladesh's ready-made garment (RMG) sector - which accounts for nearly 85 percent of the country's export earnings - is already under severe strain from weak overseas demand, higher utility tariffs and intensifying competition from regional rivals.
Exporters noted that incentive benefits have already been gradually reduced as part of Bangladesh's transition from Least Developed Country (LDC) status.
"Increasing the tax further will sharply erode the actual benefits exporters receive," said an exporter, adding that businesses already face delays, audit complications and bureaucratic hurdles in securing incentive payments.
A leader of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said the industry had earlier received assurances that no additional tax burden would be imposed in the upcoming budget.
"We were told not to expect new tax incentives, but at least existing tax rates would remain unchanged," the BGMEA leader said. "Now discussions are emerging about increasing taxes on export incentives as well."
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem warned that the garment industry is already under pressure from gas and electricity shortages, high lending rates and weakening competitiveness in global markets.
"Any additional tax burden will further raise production costs and undermine Bangladesh's competitive edge against rival countries offering aggressive fiscal and policy support to exporters," he said.
Economists also voiced concern that reducing the net benefit of export incentives could discourage investment in non-traditional export sectors and derail efforts to diversify Bangladesh's export basket beyond garments.
The proposed measures are expected to become a major flashpoint ahead of the national budget announcement, as businesses seek clarity over the government's fiscal strategy amid deepening macroeconomic challenges.
According to Finance Ministry sources, the proposed FY2026-27 national budget may reach Tk 9.30 lakh crore, significantly higher than the current fiscal year's Tk 7.90 lakh crore budget.
Officials said the previous interim government had opted for a comparatively smaller budget due to political uncertainty and economic constraints. However, the incoming elected government is now preparing a substantially larger expenditure plan - a move that could also trigger a record budget deficit.
