Govt may cut AIT on import of raw materials

The government is likely to reduce the advance income tax (AIT) on imported primary and industrial raw materials in the upcoming budget in a move aimed at easing cost pressures on businesses and consumers.

Currently, importers pay a 5 percent AIT at the import stage on raw materials. Under the proposed measure, the rate may be reduced to 4 percent or 3 percent, depending on the type of product, officials familiar with the matter told The Daily Star.

Primary raw materials refer to natural resources, while industrial raw materials include raw or semi-processed materials used to produce finished or semi-finished goods.

Finance Minister Amir Khosru Mahmud Chowdhury is expected to present the proposal in parliament on June 11 as part of the FY2026-27 national budget.

A finance ministry official, speaking on condition of anonymity, said Prime Minister Tarique Rahman approved the proposal in principle at a meeting at the Secretariat on May 14.

During the meeting, the National Board of Revenue proposed several tax measures aimed at supporting economic stability, boosting business confidence and helping contain inflation.

Officials said the reduced AIT rates would apply selectively to essential consumer goods and industrial inputs important for domestic production and supply chains.

The move is part of broader efforts to rationalise the tax burden on businesses while maintaining revenue collection amid ongoing economic challenges.

Businesses have long argued that the existing AIT structure increases import costs and creates liquidity pressure, especially for industries dependent on imported raw materials.

Abul Kasem Khan, chairperson of Business Initiative Leading Development (BUILD), welcomed the planned move.

He said excessively high AIT rates should be reduced and, in some cases, abolished altogether.

Khan argued that when import-stage taxes exceed a company’s final tax liability based on annual profits, the excess amount should either be refunded or adjusted against future tax liabilities.

The current system creates severe liquidity pressure, he said.

“In many cases, companies with a corporate tax rate of 27.5 percent effectively end up paying as much as 45 percent through different taxes and deductions, without receiving any rebate or refund,” he added.

According to him, this not only affects cash flow but also raises concerns about business sustainability.

He also said taxation should ultimately be based on profits, but in practice, it is increasingly becoming “a tax on revenue”, which contradicts basic accounting principles.

“If the government reduces AIT, that will be a positive step. But the issue requires a permanent and transparent solution. Otherwise, many businesses may either shut down or move away from compliance,” he said.