Sheikh Selim
CE of Oniket Bulletin
Bangladesh’s forthcoming budget arrives at a decisive juncture. With LDC graduation scheduled for November 2026, the country can no longer afford the comfort of a tariff regime designed for a different era.
Trade taxes and restrictions that were previously utilized as protective measures for emerging industries have become entrenched as structural impediments to export diversification, consumer welfare, and global competitiveness. In anticipation of the 2026 budget, a critical reassessment is not merely advisable; it is imperative and long overdue.
The Para Tariff Problem
At the heart of Bangladesh’s trade regime lies a layered structure of customs duties, regulatory duties, and supplementary duties that pushes total import taxation far beyond what headline customs rates suggest. The average applied tariff stands at roughly 27 percent, dramatically exceeding the world average of 6 percent and surpassing rates in comparable lower middle-income economies by a wide margin.
Para tariffs, particularly regulatory duty and supplementary duty, compound the burden. The regulatory duty, which is currently imposed on over three thousand HS codes, adds a flat surcharge to imports regardless of the product’s strategic significance. The imposition of supplementary duties, ranging from modest levels to several hundred percent on select items, has been demonstrated to generate substantial tariff surges, thereby distorting resource allocation and engendering consumer price inflation. These instruments were originally intended as provisional protective measures; however, they have since become integral components of fiscal architecture, thereby generating revenue at the expense of economic efficiency.
Anti Export Bias and Trade Policy Dualism
The most damaging consequence of this protectionist structure is the anti-export bias it embeds in the economy. The readymade garments sector thrives because bonded warehouse facilities grant it duty free access to imported inputs at world prices. Non RMG exporters enjoy no comparable privilege. They face high tariffs on raw materials and intermediate goods, slow and cumbersome duty drawback processes, and limited access to back-to-back trade finance.
The result is a stark dualism: one sector operates in a free trade enclave while the rest of the economy struggles under a heavily protectionist regime. Until domestic import substitution becomes less profitable than exporting, diversification beyond garments will remain elusive. The forthcoming budget must begin dismantling this dualism by extending duty-free input access to potential export sectors and by automating and streamlining the duty drawback system so that refunds are timely and hassle free.
Inflation and the Case for Compensated Depreciation
Bangladesh’s ongoing inflation presents a significant argument for tariff reform. The approximately 30 percent depreciation of the taka against the dollar since 2022 has effectively raised all tariffs by the same margin, since ad valorem duties are calculated based on the higher assessable value of imports. Despite the absence of any adjustments to rates, there has been a significant surge in revenue from trade taxes.
This windfall provides the government with the fiscal space to reduce selected tariffs and para tariffs without compromising overall revenue targets. The elimination or reduction of regulatory duties would result in immediate disinflationary shock, leading to a reduction in the prices of imported goods and domestic substitutes. The assertion that tariff reductions invariably result in revenue loss is not substantiated when considering the effect of depreciation, which has already elevated the effective tax burden, and the gradual lifting of import compression.
WTO Compliance and LDC Graduation
As Bangladesh approaches LDC graduation, it is essential that the country align its tariff structure with WTO-bound rates and eliminate WTO non-compliant para tariffs. The National Tariff Policy of 2023 established a comprehensive plan to enhance the nation’s trade regulations. The policy aims to progressively reduce the total duty tax rate from approximately 26 percent to 19 percent by the year 2030. It also includes restrictions on the imposition of regulatory duties, limiting their application to genuine emergencies.
Additionally, the policy outlines the withdrawal or adjustment of duties across a wide range of tariff lines, amounting to thousands. Furthermore, it seeks to reduce supplementary duties on numerous items, fostering a more favorable business environment.
Progress, however, has been fitful. The forthcoming budget must signal credible commitment to this timeline by announcing specific, quantified reductions rather than vague intentions. The withdrawal of minimum import values, which persist on a few products, should be completed immediately. User specific duty concessions, including preferential tariff rates for micro, small, and medium enterprises, should be phased out by the committed deadline to ensure a level playing field. Customs automation must be finalised on schedule to enhance transparency and reduce rent seeking.
Rebalancing Revenue Sources
Trade taxes account for approximately 26 percent of National Board of Revenue collections. This significant reliance on import duties is fiscally convenient but economically distortionary. A sustainable tax system must shift the balance toward domestic sources by broadening the VAT base, improving income and corporate tax compliance, and reducing the numerous exemptions that erode the VAT’s revenue potential.
The budget should clearly articulate a multi-year pathway for reducing dependence on trade taxes while strengthening the domestic revenue administration. Expanding the tax net and improving collections at large taxpayer units are far more productive strategies than maintaining high tariff walls that protect inefficiency.
A Defining Choice
The upcoming budget is not merely a financial exercise; it is a strategic plan to ensure the company’s long-term success. It is a statement of direction. Bangladesh can continue retreating behind higher tariffs and para tariffs, sacrificing export diversification, consumer purchasing power, and post LDC competitiveness. Alternatively, it can initiate the overdue rationalization of its trade regime, thereby reducing the protective barriers that have become a binding constraint on the economy’s next chapter.
The technical case for reform is strong. As graduation approaches, the political window of opportunity is narrowing. The budget must make prudent choices.
