The power to grant tax exemptions in Bangladesh will shift entirely to the national parliament starting from the next fiscal year, ending a long-standing practice that allowed the finance ministry and the National Board of Revenue (NBR) to offer discretionary waivers.

According to a "Tax Exemption Policy and Management Framework" published recently, no ministry or government agency, including the NBR, will be authorised to provide income tax, VAT, or duty exemptions unless explicitly approved through parliamentary legislation.

In times when parliament is not in session, temporary exemptions will require cabinet approval and can remain valid for no more than one year.

The policy, published on Wednesday, is scheduled to be implemented with the national budget for fiscal year 2025–26.

The move also responds to International Monetary Fund recommendations made under the current $4.7 billion loan programme, which calls for tightening Bangladesh's fiscal discipline, boosting domestic revenue, and cutting tax exemptions.

The policy also introduces a five-year cap on all exemptions issued for the first time, aiming to eliminate the practice of indefinite waivers that often distort the tax system and reduce fiscal transparency.

An annual tax expenditure report will be placed in parliament by the finance minister or adviser, detailing current exemptions and assessing at least one-fifth of them each year—ensuring all are reviewed within a five-year cycle and the findings made public, said the policy.

The main objective of the policy is to formulate the necessary rules and procedures for the government's tax system to formulate, implement, and measure the effectiveness of policies related to tax expenditure, said the policy.

Besides, it will help increase revenue collection by rationalising all existing tax expenditures, simplifying the tax system, and ensuring accountability and justice.

It also aims to ensure consistency of the fiscal policy through a simple, transparent, and statutory legal and administrative framework.

Experts and fiscal analysts have long criticised the absence of a clear legal framework governing tax expenditures—such as exemptions, rebates, and reduced rates—often pointing to the significant revenue losses from sector-specific or politically motivated waivers.

Until now, the NBR held the authority to grant long-term tax exemptions to individuals and institutions.

For instance, the country's garment sector has benefited from various exemptions for over four decades. And the NBR has granted a 15-year tax benefit for investments in establishing renewable energy-based power facilities.

Allegations have surfaced that influential individuals, interest groups, and business entities have leveraged their connections to secure tax exemptions amounting to thousands of crores of taka from the government.

According to the NBR's estimates, the government in fiscal year 2024–25 offered direct tax exemptions worth Tk 163,000 crore.

This is 11 percent higher than the roughly Tk 147,000 crore spent in fiscal year 2023–24, which accounted for 2.91 percent of the country's gross domestic product (GDP).

In fiscal year 2021–22, the NBR exempted various goods and services from value added tax (VAT) payments to the tune of Tk 129,570 crore, while the tax administration allowed Tk 33,729 crore in duty exemptions in fiscal year 2022–23.