In response to surging food inflation, the government of Bangladesh plans to cut taxes on a wide range of basic consumer commodities by half, from 2.0 percent to 1.0 percent, the Financial Express reported, citing official sources.

The proposed fiscal measures, which aim to ease consumers’ financial burdens, will be included in the national budget, which will be presented to Parliament on June 6.

The commodities affected by this tax reduction include essential food items such as rice, wheat, potatoes, onions, garlic, green peas, gram, lentils, turmeric, dry chili, pulses, maize, coarse flour, flour, salt, edible oils, sugar, black pepper, cinnamon, nuts, clove, cassia leaves, dates, cardamom, and all types of fruits.

Additionally, jute, cotton, yarn, and computer parts will also benefit from reduced taxes in the fiscal year 2024-25.

This decision is part of the government’s broader strategy to curb inflation and stabilize food prices through fiscal interventions.

According to the Bangladesh Bureau of Statistics (BBS), the cost of food in Bangladesh surged by 10.22 percent in April 2024 compared to the same month the previous year.

Over the past year, food inflation averaged 6.83 percent, peaking at 12.56 percent in October 2023, a stark contrast to a record low of 3.77 percent in February 2016.

Banks and financial institutions currently deduct taxes on these commodities procured through letters of credit (LC) or other financing agreements based on the amount paid or loaned.

The move follows direct instructions from the Prime Minister to address food inflation through fiscal measures in the forthcoming budget. However, Dr. Zahid Hussain, a former lead economist at the World Bank in Bangladesh, expressed skepticism about the effectiveness of this approach. He suggested that subsidizing food prices through increased government allocations might be a more effective strategy if market power can be controlled.

In a related development, the National Board of Revenue (NBR) announced that the blanket tax holiday for megaprojects and other physical infrastructures would not be extended beyond the current fiscal year.

The ten-year tax holiday, which began in 2019, provided significant tax exemptions for newly established physical infrastructure facilities such as deep-sea ports, elevated expressways, export-processing zones, flyovers, gas pipelines, hi-tech parks, and other key projects.

Under the current tax holiday scheme, these infrastructure projects received a 90 percent tax exemption on income, profits, and gains for the first and second years of operation. The exemption rates gradually decreased in subsequent years, with a 10 percent exemption in the tenth year.

The cessation of this tax holiday will likely impact the financial planning of ongoing and future infrastructure projects. However, it also signals the government’s intent to shift its fiscal policy towards generating more domestic revenue to fund critical social and economic programs.

As Bangladesh transitions from its Least Developed Country (LDC) status by 2026, it aims to diversify and strengthen its trade and economic connectivity. This ambitious goal requires substantial investments in infrastructure and logistics, estimated at $608 billion by 2041, according to international think tanks.