The government of Bangladesh is considering implementing measures such as levying a carbon tax on private car owners and raising the wealth surcharge rate in the upcoming fiscal year (FY) 2023-24 budget to address the growing income gap.

Under the proposed budget, taxpayers who own more than one vehicle may be subject to a ‘carbon tax,’ while individuals with a net asset value exceeding Tk 1.0 billion could face a 40% tax rate, a 5% increase from the current rate.

The National Board of Revenue (NBR) is contemplating raising the wealth threshold for the surcharge by Tk 10 million through the Finance Bill 2023, which will be presented to Parliament on June 1, 2023, for approval.

The carbon tax, a first for Bangladesh, is expected to range from Tk 20,000 to Tk 0.3 million. Despite the country’s increasing reliance on fossil fuels, previous attempts to introduce a carbon tax have been unsuccessful.

Economists argue that widening the tax net is crucial for reducing income inequality rather than burdening existing taxpayers. They suggest that the NBR should focus on imposing heavier taxes on idle land in municipal and city-corporation areas to encourage productive use, as wealth valuation poses challenges.

While the principle of a carbon tax is commendable, critics emphasize the need to ensure its effectiveness in reducing carbon emissions and promoting sustainable alternatives to private cars, such as investing in better public transport systems and creating walkable cities.

The finalized fiscal measures are yet to be determined, pending the Prime Minister’s approval. The NBR is scheduled to present the proposed fiscal measures for FY24 to the Prime Minister on May 14.

Corporate tax rates are unlikely to be reduced this year, although they were reduced by 2.5% over the past two years. Other potential changes include upward adjustments to source taxes and travel tax and an increase in the tax-free ceiling for individual taxpayers to Tk 350,000 to account for rising living costs.

To encourage more tax returns, the NBR may introduce a new provision called ‘Tax Return Prepare’ to assist taxpayers. However, the offshore tax amnesty program will not continue due to its failure to attract taxpayers.

Economists express concern about Bangladesh’s rising income inequality, with the Gini coefficient reaching 0.483 in 2016, close to the dangerous threshold. The impact of the COVID-19 pandemic may have further exacerbated income inequality in the country over the past six years.