New tax incentives set to boost industry

The proposed national budget for FY2026-27 has introduced a broad package of tax and customs incentives aimed at improving the business environment, promoting industrialisation, boosting exports, lowering production costs and encouraging investment in renewable energy.

Responding to long-standing demands from the business community, the government has reduced taxes in several areas.

These include cutting income tax on cash export incentives from 10 per cent to 5 per cent, while maintaining the source tax rate
at 1 per cent and leaving corporate tax rates unchanged to ensure policy stability.

Business leaders said the measures could help strengthen industrial production, diversify exports and attract both domestic and foreign investment if implemented effectively.

To support direct exports by small and medium enterprises (SMEs), the budget proposes a new Statutory Regulatory Order (SRO) allowing SMEs to procure raw materials from local sources.

The initiative is expected to strengthen domestic supply chains and improve export opportunities for smaller businesses.

The government has also expanded bonded warehouse facilities, allowing separate units of the same organisation located within a 60-kilometre radius to enjoy continuous bond benefits.

At the same time, stricter safeguards have been introduced, including a minimum 30 per cent value-addition requirement and re-export conditions to prevent misuse of the facility.

A significant emphasis has been placed on renewable energy.

The budget proposes extending tax exemptions on imports of solar power equipment until 2031, while duty concessions on battery-related imports, including mounting structures and battery components, will continue until 2030.

Industry stakeholders believe these incentives will support the expansion of the electric vehicle and renewable energy sectors while creating opportunities for backward linkage industries.

Manufacturers are also expected to benefit from a reduction in import duty on raw materials from 5 per cent to 4 per cent, a move aimed at lowering production costs and enhancing competitiveness.

In addition, the supplementary duty on synthetic wool fabric has been withdrawn, while a 5 per cent duty has been imposed on polyester staple fibre imports to provide protection for local yarn manufacturers.

Tax exemptions on chemicals used in Effluent Treatment Plants (ETPs) have been extended until 2027 to encourage environmentally sustainable industrial practices.

To improve the ease of doing business, the budget proposes replacing monthly VAT return submissions with quarterly filings, reducing compliance costs and administrative burdens for businesses.

The proposal also includes lower source tax rates in several sectors, reduced dividend tax for foreign investors and a lower tax rate on reinsurance.

In addition, it offers an opportunity to regularise undisclosed income invested in property transactions through payment of applicable taxes.

As part of efforts to accelerate investment and industrial development, the government plans to introduce a mandatory single-window service system.

Under the proposal, company registration will be completed within 48 hours, delayed applications will receive deemed approval, and utility connections in factory zones will be provided within 24 hours.

Industries located outside Dhaka and Chattogram will receive accelerated depreciation benefits, allowing 60 per cent depreciation in the first year and 40 per cent in the second year.

The budget also promises plug-and-play facilities in economic zones to facilitate investment.

Business leaders broadly welcomed the proposed incentives but cautioned that effective implementation would be critical to achieving the desired outcomes.

Mahmud Hasan Khan said the budget contains several positive measures for export-oriented industries, particularly the ready-made garment sector, but emphasised the importance of proper execution.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem said the reforms could ease liquidity pressures and improve business confidence.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) described the Tk9.38 trillion budget as “large but implementable”, while the Bangladesh Chamber of Industries (BCI) and the Dhaka Chamber of Commerce and Industry (DCCI) also welcomed the business-friendly initiatives, noting that their effectiveness would depend largely on implementation.

DCCI President Taskin Ahmed said the proposed FY2026-27 budget was supportive of business growth but added that its success would hinge on meeting revenue targets and effectively carrying out the announced reforms.