Introduction
Taxes are a vital source of revenue for the government to fund public services, infrastructure, and other essential expenditures. In Bangladesh, the Income Tax Act 2023 (ITA 2023) governs taxation for individuals, corporations, and other entities. To address economic challenges and streamline taxation, the Act was revised in 2025.
This article provides a detailed overview of key changes in ITA 2023, its impact on taxpayers, and the proposed changes for 2026-2027 and 2027-2028.
Background and Purpose of the Income Tax Act 2023
The Income Tax Ordinance 1984 had been in effect for nearly four decades. Rapid economic growth, legal evolution, and international taxation trends demanded a modernized and comprehensive tax law.
Objectives of ITA 2023:
- Simplifying and modernizing the tax system
- Complying with global best practices
- Expanding the tax base and improving revenue collection
- Encouraging investment and economic growth
- Ensuring fair distribution of tax burden
- Increasing transparency and reducing complexities
- Promoting digitalization in tax administration
Key Changes in 2025 Affecting ITA 2023
A. Administrative Reforms
- Abolition of NBR/IRD: National Board of Revenue (NBR) and Internal Resources Division (IRD) are dissolved.
- New Divisions:
- Revenue Policy Division (RPD): Focuses on tax policy, legislation, treaty negotiations, and research.
- Revenue Management Division (RMD): Handles operational tax administration, compliance, audits, and taxpayer services.
B. Terminological Updates
- Tax Day Removed: November 30th was previously considered “Tax Day” for individuals; now deadlines are more flexible.
- Dividend Definition Amended: Joint venture post-tax profit distributions to non-natural partners are not treated as dividends (effective 2025-2026).
- Fair Market Value: Updated to include price determined by Deputy Commissioner or residual value in leased assets.
- Commissioner Definition Updated: Refers to the Tax Commissioner under new clauses.
- Annual Value Definition: Now refers to reasonable annual rent of any property.
- Repeal of Section 20: No tax on differences in import, export, or investment.
- Section 21 Amendment: Penalties on undisclosed foreign assets now include taxpayers “Bangladeshi by birth.”
C. Individual Taxation
1. Individual Taxpayer Rates
| Income (BDT) | Current Rate 2025-2026 | Proposed 2026-2027 & 2027-2028 |
|---|---|---|
| First 350,000 / 375,000 | 0% | 0% |
| Next 100,000 | 5% | 10% |
| Next 300,000 / 400,000 | 10% | 15% |
| Next 400,000 / 500,000 | 15% | 20% |
| Next 500,000 | 20% | 25% |
| Next 2,000,000 | 25% | 25% |
| Balance | 30% | 30% |
Note: Maximum 30% tax for non-residents remains unchanged.
2. Individual Tax-Free Thresholds
| Taxpayer Type | 2025-2026 (BDT) | Proposed 2026-2027 & 2027-2028 (BDT) |
|---|---|---|
| General Taxpayer | 350,000 | 375,000 |
| Female / Age 65+ | 400,000 | 425,000 |
| Physically challenged / Third gender | 475,000 | 500,000 |
| War-wounded / Freedom Fighters | 500,000 | 525,000 |
| Parents / Legal guardians of disabled children | 50,000 per dependent | Unchanged |
3. Minimum Tax (City Corporations)
| Location | Minimum Tax 2025-2026 | Proposed 2026-2027 & 2027-2028 |
|---|---|---|
| Dhaka North/South & Chittagong City Corp | 5,000 | 5,000 |
| Other City Corporations | 4,000 | 4,000 |
| Areas outside City Corporations | 3,000 | 3,000 |
| New taxpayer minimum | N/A | 1,000 |
4. Surcharge on High-Income Individuals
- Net worth > Tk 4 crore: Minimum 10% surcharge
- Tk 10–20 crore: 20%
- Tk 20–50 crore: 25%
- > Tk 50 crore: 35%
Rates unchanged for 2026-2027 & 2027-2028
5. Environmental Surcharge on Vehicles
| Engine Capacity (CC / KW) | 2025-2026 Rate (BDT) | 2026-2027 & 2027-2028 Rate |
|---|---|---|
| Up to 1,500 cc / 75 kW | 25,000 | Same |
| 1,501–2,000 cc / 76–100 kW | 50,000 | Same |
| 2,001–2,500 cc / 101–125 kW | 75,000 | Same |
| 2,501–3,000 cc / 126–150 kW | 150,000 | Same |
| 3,001–3,500 cc / 151–175 kW | 200,000 | Same |
| Above 3,500 cc / 175 kW | 350,000 | Same |
6. Employment Benefits & Taxes
- Insurance premiums, medical expenses (e.g., artificial limbs, brain surgery) are non-taxable.
- Benefits from motor vehicles/transport: Taxable based on engine size; luxury vehicle tax increased.
- Group insurance premium considered employee expense.
7. Tax on Rental Income
- Advance rent through bank transfer adjusted over contract period.
- Cash-based rent exceeding 0.5 million per year: Special advance treatment applies.
- Rental income through bank transfer is exempt from deductions for tax purposes.
D. Company Taxation
| Company Type | Current Rate | Proposed Rate |
|---|---|---|
| Publicly traded (10%+ IPO) | 20% | 20% |
| Publicly traded (<10% IPO) | 22.5% | 27.5% |
| Non-public companies | 25% | 25% |
| Private educational institutes | 15% | 15% |
| One Person Company (OPC) | 20–22.5% | 27.5% |
| Banks & financial institutions | 37.5–40% | 37.5–40% |
| Tobacco-producing companies | 45% + 2.5% | Unchanged |
| Mobile operators (publicly traded) | 40% | 40% |
| Mobile operators (non-public) | 45% | 45% |
E. Withholding Tax (TDS)
- Raised from 1% to 1.5% under Section 97.
- Quarterly filing required (25th of Jan/Apr/Jul/Oct).
- Certain government departments exempt.
- TDS on consultancy, professional service, technical service, catering, media, transport, internet, insurance, etc.
F. Tax Exemptions & Rebates
- Awards from foreign governments: Cannes, Nobel, Pulitzer, Grammy, etc.
- Agricultural income, poultry, seed marketing, dairy, shrimp/fish farming up to 5 million exempt if no other income.
- Investment rebates: Life insurance, provident fund, authorised securities, laptops/PCs qualify.
G. VAT & Indirect Taxes
- Advance tax: Commercial importers 5%, raw material importers 2%.
- VAT exemptions: LNG, computer monitors, aircraft lease, packaged milk.
- Online sales VAT and large balances adjusted.
H. Tax Return Filing
1. Who Must File
- Individuals earning above tax-free limit
- Companies, directors, partners, employees in executive roles
- Non-resident with permanent business in Bangladesh
- Anyone required under Section 261 & 264
2. Methods
- Manual: Paper form submission
- E-Return: Online via NBR portal
3. Consequences for Non-Compliance
- Penalty under Section 266
- Interest 2% per month on unpaid taxes
- Issues with utility services, salary complications
4. Exempted Entities
- Government universities, banks, BTRC, BSEC
- Orphanages, shelters, religious institutions
- Non-residents with no fixed base
I. Miscellaneous
Request a free consultation at Rashel’s Law Desk for assistance.
Spouse or minor child income included if not separately taxed.
