TBT Desk : Investors warn the proposed FY2026–27 budget could further depress foreign investment, citing confidence-hitting measures like new cigarette pricing tiers, mandatory e-VAT for multinationals, higher personal income tax brackets, and hiked raw material duties. According to the Foreign Investors' Chamber of Commerce and Industry (FICCI), these fiscal measures will ultimately disrupt a level playing field for businesses.
At a recent press conference, FICCI warned that the newly proposed 0.2 percent advance source tax on retailers will squeeze their working capital and potentially incentivize informal or illicit transactions. Furthermore, the budget maintains a 2.5 percent turnover tax on the beverage industry, forcing even loss-making entities to pay, which disproportionately disadvantages tax-compliant companies over non-compliant peers. FICCI cautioned that these combined measures will distort a level playing field for legitimate businesses, ultimately hitting investment.
FICCI’s budget review highlights significant disparities in the proposed price adjustments for the cigarette sector, one of the largest avenues for foreign investment. While prices for the low-tier segment were raised by a mere 3.3 percent, the medium, high, and premium tiers saw an average increase of 15 percent. This heavily favors low-tier manufacturers, distorting a level playing field among producers and ultimately threatening government revenue collection. Due to this discriminatory shift in pricing tiers, government revenue from this sector in FY2026–27 is projected to decline by 3 percent compared to the current FY2025–26.
Speaking at the press conference, FICCI Tax Consultant Snehasish Barua warned that the proposed changes to the cigarette pricing tiers could fuel the growth of an illicit cigarette market. Furthermore, he noted that these measures could negatively impact the performance of listed tobacco companies on the stock market.
Commenting on the matter, FICCI President Rupali Haque Chowdhury noted that tobacco companies in the country face an 83 percent tax rate, one of the highest in the world for this sector. She warned that if the illicit market expands on top of this heavy burden, it will weaken these companies, drive down government revenue, and ultimately discourage both local and foreign investors.
She added that if cigarettes are harmful, they are harmful across the board, questioning why such a stark disparity should exist between the tiers. Regarding the premium segment, she pointed out that the sustainability of the involved companies, whether local or foreign, is being called into question, emphasizing that this policy needs to be rationalized.
FICCI also noted that while corporate tax rates remain unchanged in the budget, the lack of a long-term tax-reduction roadmap weakens Bangladesh's position for regional FDI compared to its peer economies. Furthermore, forcing large and multinational taxpayers into full e-VAT compliance without a transition window or adequate field-level preparation threatens to trigger severe operational complications. Raising the maximum personal income tax rate to 35 percent will also drive up the cost of recruiting skilled foreign professionals.
Meanwhile, manufacturing, chemicals, construction materials, and engineering serve as some of the primary destinations for foreign investment in Bangladesh. However, the proposed budget has hiked import duties on essential industrial raw materials for these sectors, including metal sheets, motors, and copper wires.
Business leaders emphasize that the negative fallout from these various measures could hit both the existing operations of foreign investors and their future investment decisions. In their view, the proposed budget changes have created risks of excessive costs and heightened uncertainty for foreign investors, which could further depress FDI. They urge that these areas of concern be reviewed and amended before the budget is passed. Additionally, they stressed that implementing structural reforms and ensuring a competitive business environment are crucial to boosting both investment and government revenue collection.
Economic analysts point out that the country's investment climate has struggled for several years. Provisional BBS data shows Bangladesh’s investment-to-GDP ratio consistently falling: dropping to 27.93 percent in the current FY2025–26, from 28.54 percent in FY2024–25 and 30.70 percent in FY2023–24.
Foreign Direct Investment (FDI) has also dropped significantly in recent times. Reversing last year's minor recovery, FDI has turned downward again this year. Latest Balance of Payments data reveals that Bangladesh drew 114.40 crore dollars in FDI during the first ten months (July–April) of this fiscal year, a sharp drop of over 20 percent compared to the 143.40 crore dollars recorded during the same period last fiscal. Amid this downward FDI trend, there are growing fears that several proposed budget measures will severely damage foreign investment.
