Budget proposes massive cuts to tax appeal deposits to ease burden on businesses

With over 33,000 tax cases clogging appellate forums and tying up more than Tk1.10 lakh crore, the government has finally moved towards regional standards by cutting income tax and VAT appeal deposit requirements down to as low as 14% and 4%, respectively.

Businesses have welcomed the government's aggressive cuts to tax and VAT appeal deposits in the fiscal 2026-27 budget as it will boost their much-needed cash flow. However, fiscal experts cautioned that significantly lower deposits could inadvertently trigger a wave of prolonged litigation.

In 2018, the National Board of Revenue accused a company of evading Tk925 crore in VAT after auditing four years of its financial records. The company disputed the claim and challenged it before the VAT Appellate Tribunal and later in court, arguing that the audit was flawed. However, before its appeal could be heard, the company was required to deposit nearly Tk200 crore in two instalments.

Eight years later, the dispute remains unresolved. While the company has yet to be found guilty of tax evasion, the capital tied up in the legal process has doubled to nearly Tk400 crore when financing costs and interest expenses are considered.

"We had to borrow from banks to make the deposits. The case is still pending and we don't know when it will be resolved. Meanwhile, a significant amount of capital remains locked up, creating cash-flow pressures," a senior company official told The Business Standard.

Business leaders say the move could unlock crores of taka in working capital, reduce litigation costs and improve Bangladesh's investment climate.

Under the proposed Finance Bill, the cumulative deposit required for income tax appeals from the Commissioner (Appeals) to the High Court has been reduced from 35% of the disputed tax amount to 14%.

Infograph: TBS

For VAT and customs disputes, the total deposit requirement has been reduced even more sharply from 20%-30% to only 4%.

At the tax tribunal stage, the deposit requirement has been cut from 10% to 2%, while High Court appeals will require significantly lower deposits than before.

The reforms are part of a broader government initiative to simplify tax administration, reduce the discretionary powers of tax officials and improve the ease of doing business.

In his budget speech, Finance Minister Amir Khosru Mahmud Chowdhury said the government is undertaking major reforms in the VAT system to make services more accessible to taxpayers and increase transparency in tax administration.

"Reducing the complexity and cost of tax dispute resolution will lessen financial and psychological burdens on businesses, which will ultimately support investment, production and employment generation," he said.

Businesses welcome long-awaited reform

Business chambers and foreign investors have long argued that Bangladesh's appeal deposit requirements were among the highest in the region and often discouraged taxpayers from pursuing legitimate appeals.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce and Industry, described the reform as a long-awaited breakthrough.

"This has been one of the most consistent demands from the business community. Companies were forced to keep large amounts of capital tied up for years while cases remained unresolved. The reduction in deposit requirements will significantly improve cash flow and investor confidence," he said.

Md Rezwan Bin Rafique, head of taxation and fiscal compliance at Grameenphone, welcomed the reduction in the statutory appeal deposit requirement under both the income tax and VAT laws.

He said, "In Bangladesh, tax and VAT disputes often remain pending in the legal forum for several years. The previous appeal deposit requirements were creating significant cash flow pressures for taxpayers while disputes were under adjudication. 

"The proposed reduction is a positive policy measure that will improve access to the appeal process, facilitate taxpayers' ability to exercise their legal right to appeal, and contribute to a more balanced and efficient dispute resolution framework."

Tax experts have broadly welcomed the reforms but warned that lower deposits could encourage some businesses to prolong disputes unnecessarily.

"Reducing the complexity and cost of tax dispute resolution will lessen financial and psychological burdens on businesses, which will ultimately support investment, production and employment generation."

Snehasish Barua, partner at Snehasish Mahmud & Co, said the success of the reforms would depend on taxpayer behaviour and faster case resolution.

"There is a possibility that some taxpayers may use the lower deposit requirements to keep disputes alive for longer periods. Businesses should not view the reform as an opportunity to delay legitimate tax payments," he said.

"What is equally important is ensuring that appeal cases are resolved within a reasonable timeframe."

Tax practitioners estimate that some cases currently remain pending for seven to 15 years before reaching final resolution.

Taskin Ahmed, president of the Dhaka Chamber of Commerce and Industry, said the proposed changes address a longstanding concern of businesses.

"Capital is the lifeblood of business. When a company has to lock up large sums of money for years before its case is heard, that capital cannot be used for expansion, innovation or job creation. Reducing appeal deposits is a positive step toward building a more investment-friendly tax system," he said.

According to Taskin, the reform aligns with broader efforts to improve Bangladesh's competitiveness as it prepares for LDC graduation and seeks to attract more foreign direct investment.

In many developed economies, including the United Kingdom, Australia and Singapore, taxpayers can challenge tax assessments without making large upfront deposits. Instead, authorities rely on risk-based enforcement, penalties for non-compliance and efficient dispute resolution systems.

According to tax policy experts, modern tax systems increasingly focus on quick dispute resolution rather than using high deposits as a deterrent against appeals.

Senior officials at the NBR say the reform is intended to ensure access to justice without compromising revenue interests.

"The objective is to create a fairer appeals process. Taxpayers should have the opportunity to challenge assessments without facing excessive financial burdens. At the same time, safeguards remain in place to prevent frivolous appeals," an official said.

Digitalisation and reduced discretionary powers

Beyond appeal reforms, the proposed budget introduces several measures aimed at modernising tax administration and reducing discretionary power.

Beginning in FY27, electronic VAT return submission will become mandatory, similar to income tax returns.

The government has also proposed simplified VAT return forms for small taxpayers, allowing them to file returns online using limited information.

At the same time, provisions have been included to reduce discretionary powers previously exercised by tax officials and commissioners.

Business leaders say these reforms could help reduce compliance costs, improve predictability and minimise taxpayer harassment.

NBR officials said reducing discretionary powers of tax officials would improve transparency and reduce opportunities for inconsistent decision-making.