Budget offers tax relief, but inflation control needs stronger measures: Masrur Reaz

The budget has attempted to avoid adding pressure on citizens and businesses by keeping tax burdens unchanged and reducing some taxes, but stronger measures are needed to tackle inflation, said M Masrur Reaz, chairman of Policy Exchange Bangladesh.

The budget was prepared amid several major challenges, with inflation being the most critical one, he said in his immediate reaction to the proposed 2026-27 fiscal year budget, placed before the parliament on Thursday [11 June].

"Inflation is a multidimensional shock that affects citizens, businesses, domestic demand and the exchange rate. Therefore, expectations were that inflation management would be clearly reflected in the budget strategy and policy approach," he said.

Masrur added that one positive aspect of the budget proposal is the government's attempt not to increase the tax burden. Bangladesh's tax structure is already complex, while the pressure of taxation remains relatively high.

"Instead of increasing tax rates, some taxes have been reduced. This could ease pressure on citizens and businesses and help contain inflationary impacts to some extent," he said.

The economist further said the government has also reduced import duties, advance taxes and source taxes on some items to help lower market prices. 

However, Masrur cautioned that effective market management would be crucial for consumers to benefit from such measures. "If prices are increased uncontrollably at different stages of the supply chain, the benefits of tax reductions will not reach consumers.

Reaz said increasing the minimum tax-free income threshold slightly was a positive step, though the rise could have been larger to create a meaningful impact.

He also welcomed the expansion of social safety net programmes and higher allocations, saying these measures would help low-income groups cope with inflationary pressures.

However, he pointed out that the budget also missed opportunities in some strategic areas. The budget size has increased by around 19%, indicating an expansionary approach.

"Although higher development spending is necessary, a more limited increase or reprioritisation could've helped keep inflationary pressure in control," he said.

He warned that a large budget deficit and ambitious revenue targets could increase future dependence on bank borrowing. 

"This may restrict credit flow to the private sector. At the same time, increased money supply through government spending could keep inflationary pressure elevated," he said.

Masrur said measures such as avoiding higher taxes, reducing some duties and expanding social protection were positive steps. 

"However, more coordinated and strategic initiatives are needed to directly reduce inflation, particularly stronger coordination between fiscal and monetary policies," he added.