CPD for increasing tax-free income limit to Tk 4 lakh in FY26

The Centre for Policy Dialogue (CPD) today urged the government to increase tax-free income threshold for personal income to Taka 4 lakh in the upcoming fiscal year 2025-26 (FY26) budget given the prevailing high inflationary situation.

“Due consideration should be given to the economy-wide implications and equity concerns related to enhancing fiscal space and streamlining governmental spending. Supporting limited income, disadvantaged and vulnerable groups should be a primary priority of fiscal management in the days ahead, both for measures related to revenue and expenditures,” said CPD Executive Director Fahmida Khatun.

The executive director said this at a media briefing on recommendations for the national budget FY2025-26 at CPD office in the city.

When the interim government took office in August 2024, Fahmida Khatun said, controlling inflation was one of its major economic priorities and the interim government has taken several measures to control inflation.

During the July-February period of FY2025, she said, general inflation remained over 9 per cent at national, rural, and urban levels. “Food inflation in urban and rural areas was generally higher than non-food inflation. On an average, inflation in rural areas was higher than in urban areas,” she added.

To address inflation, she said, the government implemented measures such as distributing smart family cards for subsidised essential goods and reducing VAT on supermarket purchases.

However, she noted that these efforts were only partially successful due to structural issues like reliance on indirect taxes, supply chain irregularities, and inadequate market monitoring.

Fahmida Khatun said the national budget for FY26 holds significant importance as it is being formulated by the interim government amid a challenging macroeconomic environment.

“The interim government inherited an economy characterised by high inflation, subdued revenue collection, sluggish budget implementation, a liquidity crunch in the banking sector, and declining foreign exchange reserves. The lower momentum in export earnings and remittance inflows has further exacerbated economic vulnerabilities,” she added.

Under the circumstances, restoring macroeconomic stability remains the foremost concern for policymakers, she said.

She mentioned that this requires targeted interventions to address inflationary pressures, stabilise the exchange rate, and ensure fiscal prudence.

Fahmida Khatun said the budget must prioritise the protection of vulnerable and disadvantaged groups and economic recovery.

The FY26 budget will probably be the only budget formulated by the current interim government under new leadership at the finance ministry, she added.

“In this context, the upcoming national budget presents a unique opportunity for the interim government to move beyond conventional approaches, implement short-term corrective measures, and establish the groundwork for medium-term reforms in resource mobilisation, public finance management, and expenditure efficiency,” she said.

The CPD executive director said a crucial first step in this process would be the development of a credible and well-structured fiscal framework. (BSS)