Prof. Dr. Muhammad Mahboob Ali :
In Bangladesh, fiscal policy-which includes government spending and taxation-plays a vital role in shaping the economy through the annual budget that details resource allocation. This budget serves as the cornerstone of fiscal policy, influencing macroeconomic stability, growth, and income distribution. The proposed national budget for the fiscal year 2025-26 consists of several key elements:
Total Budget Size: Taka 7.90 lakh crore
Revenue Target: Taka 5.64 lakh crore
Of this amount, Taka 4.99 lakh crore is anticipated from the National Board of Revenue (NBR), while Taka 65,000 crore will be sourced from other means.
Annual Development Programme (ADP): Taka 2.30 lakh crore
This allocation includes Taka 1.44 lakh crore from the government and Taka 86,000 crore from project loans and grants.
Budget Deficit: Taka 2.26 lakh crore
To cover this deficit, Taka 1.25 lakh crore is projected to be raised from domestic markets and Taka 1.01 lakh crore from international sources.
Finance Adviser Dr. Salehuddin Ahmed presented this proposed national budget on June 2, 2025.
The budget also tackles crucial elements and challenges impacting business growth and taxpayer compliance:
Positive Aspects
Withholding Tax Reduction: The reduction in withholding tax for construction and essential goods offers significant relief.
Dividend Taxation: Exempting dividends from joint ventures from taxable income prevents double taxation.
Concerns
Removal of Tax Exemptions: Eliminating exemptions for banking transactions may deter businesses from engaging with formal financial systems.
Increased VAT on E-commerce: Raising VAT on online sales from 5% to 15% could hinder the growth of the e-commerce sector.
Pressure on the Middle Class: Adjustments to the tax structure may increase the financial strain on middle-income earners.
Budget Allocations
Education:
Primary and mass education: 35,403 crore taka
Secondary and higher education: 47,563 crore taka
Health: 41,908 crore taka
Agriculture: 39,620 crore taka
Economic Challenges
High Budget Deficit: The projected deficit is Tk 226,000 crore, representing 3.60% of GDP, financed through domestic and foreign resources.
Inflation and Interest Rates: Rising inflation and interest payments limit the government’s ability to develop.
Low Tax-GDP Ratio: Bangladesh has one of the lowest tax-GDP ratios in Southeast Asia, which hampers revenue generation.
Strategic Initiatives
Sustainable Growth: Collaboration among government, private sector, NGOs, and international organizations is essential.
Infrastructure Development: Improving international connectivity is crucial.
Job Creation: Prioritizing employment opportunities in rural and urban areas is vital.
Financial Stability: Addressing liquidity crises in banks is key to economic stability.
Tax Compliance and Awareness
Public Awareness Campaigns: These initiatives have successfully increased tax registration and compliance, particularly among small businesses.
Targeted Outreach: Programs aimed at rural communities seek to enhance tax compliance through local leadership.
This budget outlines significant allocations and initiatives aimed at fostering growth and social welfare while addressing challenges for sustainable economic development. Effectively balancing tax structures, enhancing compliance, and investing in infrastructure are essential for Bangladesh’s future.
I consistently advocate for a balanced budget that is not dependent on donor funding or deficit financing. Heavy reliance on donor assistance can undermine national autonomy, as it often comes with conditions that may not align with local priorities. Furthermore, increased deficit financing through expanding the money supply can lead to inflation, currency depreciation, rising interest rates, and growing national debt, all of which can impede economic growth and stability.The Bangladesh Institute of Development Studies (BIDS) has highlighted a notable increase in poverty rates across various districts between 2022 and 2024, indicating that “food insecurity has reached concerning levels.” The World Bank has observed similar trends in poverty, which may continue this year due to the anticipated slowdown in GDP growth for FY25. Recent economic disruptions, and elevated inflation have disproportionately impacted vulnerable populations and marginalized people.
To foster economic well-being, the budget should emphasize financial inclusion for rural communities and urban slum residents, alongside strategies to reduce the prices of essential goods. Ongoing public awareness campaigns are vital for informing citizens about the significance of tax contributions. A thorough review of tax policies to eliminate loopholes and the adoption of progressive taxation can help create a fairer system. Enhancing compliance monitoring through data analytics will be beneficial in identifying tax evasion.
Encouraging the formalization of small businesses through incentives will support their transition to the formal economy, while simplifying the tax code will alleviate compliance challenges. Collaborating with NGOs and the private sector can effectively reach underserved communities, promoting tax registration. Transparency initiatives that clarify how tax revenues are utilized will strengthen trust in government institutions. Cultural sensitivity programs should positively address misconceptions about taxation, utilizing community leaders to reshape public attitudes.
A robust taxpayer education strategy is essential for improving tax compliance and facilitating socio-economic development. Governments should allocate adequate resources for training tax officers and providing education to small taxpayers. Increasing awareness of tax responsibilities, simplifying compliance processes, and offering assistance aligned with the organization’s Compliance Model are key steps.
To establish a budget that effectively serves low-income populations, a holistic approach is crucial. The budget should prioritize programs that directly benefit these communities, such as outreach and digital access initiatives, implemented in phases for optimal cost management. Collaborative efforts with NGOs and the private sector will enhance the impact of funded projects. Resources should be allocated based on performance metrics for programs with measurable outcomes, with a portion of the budget reserved for monitoring and evaluation.
To encourage participation in money whitening schemes, the budget should offer tax incentives, streamline application processes, and launch public awareness campaigns. Partnerships with banking institutions can enhance engagement, and recognizing participants with certificates and media coverage can elevate their reputational standing. Furthermore, the budget should detail measures to reduce reliance on the hundi system by improving access to formal banking services and enhancing online banking infrastructure.
Overall, the budget should prioritize lowering inflation, job creation, and improving sector efficiency while fostering inclusivity. Utilizing these KPIs will help the government ensure efficient resource allocation and achieve social welfare objectives. However, the government’s borrowing target from the banking system to address the budget deficit may restrict credit flow to the private sector.
The proposed national budget for 2025-26 has the potential to create a more inclusive, effective, and sustainable economic environment, ultimately promoting growth and social justice for all citizens. Successful implementation of the national budget and the annual development plan is essential, with controlling inflation and increasing employment being major challenges. Additionally, establishing a business-friendly and corruption-free system is vital for future progress.
(The author is a Macro and Financial Economist, Professor of Economics, Bangladesh University of Business and Technology. Email:[email protected])
