The proposed changes in income tax will disproportionately raise the burden on low- and middle-income earners over the next two fiscal years, while taxpayers in higher income brackets will face a relatively modest increase, said the Centre for Policy Dialogue (CPD) today.
"This goes against the principle of equitable tax burden and equity," said the think-tank in a paper at a post-budget dialogue at the Lakeshore Hotel in Dhaka.
According to CPD estimates, tax liabilities for individuals earning Tk 6 lakh, Tk 10 lakh, and Tk 15 lakh annually will rise by 12.5 percent, 16.7 percent, and 16.7 percent respectively over the next two fiscal years (FY27 and FY28).
Meanwhile, those earning Tk 30 lakh a year or more will see their tax burden increase by only 7.6 percent, it said.
"From a distributional perspective, this tax structure is not balanced. A key objective of the national budget is to reduce inequality, and this structure doesn't align with that goal," said its Executive Director Fahmida Khatun at the dialogue.
She said that in the proposed budget, the annual tax-free income threshold for general taxpayers has been raised to Tk 3.75 lakh for FY27 and FY28.
"It's a positive step. But the concern is that it won't take effect until FY2026–27. That raises questions, especially since the previous threshold was set back in FY24," she added.
This disparity stems from a minimal increase in the tax-free income threshold from Tk 3.5 lakh to Tk 3.75 lakh, representing just a 7 percent rise.
In contrast, the cost of living is expected to surge by at least 27 percent to 28 percent during the same period (assessment year 2026–27), relative to the base year of 2023–24, she added.
The budget speech acknowledged inflation as one of the biggest challenges. However, measures are not enough to rein in inflation.
"The burden of inflation falls more heavily on low-income and fixed-income groups," Fahmida said.
The CPD said the tax-free income threshold for 'July warriors' has been set at Tk 5.25 lakh. "It is welcoming."
Additionally, a minimum tax of Tk 1,000 for new taxpayers is a positive initiative.
The proposed uniform minimum tax of Tk 5,000, replacing previous differentiated rates, will remove the disparity in tax rates between more developed areas like Dhaka and less developed regions, said the CPD.