Capital market groups have long been requesting the government to roll back its tax rate on brokerage commissions to 0.015 percent from the existing 0.05 percent.
Alongside, they have been looking for a flexible, tolerable taxation on brokerage fees in case of trading bonds, debentures and other future securities considered big ticket securities with low room for capital gains.
Looks like the government is going to respond to the latter only.
Sources, informed about the contents of the upcoming budget documents, told The Business Standard that the government is planning to declare the tax rate on brokerage fees collected from securities other than shares and mutual funds flexible – 10 percent on what a broker charges its client.
The implication of existing provisions on the market has been very confusing since 2013 when the Finance Act repealed the provision of charging 0.05 percent tax on market price of a bond traded in stock exchanges.
But as other provisions in the same Income Tax ordinance did not categorically omit bonds from the list of securities taxable in the secondary market trading, the Dhaka Stock Exchange (DSE) has been seeking a clarification, which is yet to come.
As the bonds have not been a popular scrip in the stock exchanges of Bangladesh, the issue did not gain attention. But the DSE refrained from collecting tax from brokers who executed some rare trades of bond units – corporate bonds only as listed treasury bonds are yet to resume trades.
Brokerage fee on bond trading has long been a concern if collected at the same rate as that from stocks and mutual funds which have a higher room for capital gains.
Last December, a technical committee of financial regulators to resume effective secondary trading of Treasury bonds recommended a maximum brokerage fee of Tk50 against each transaction – howla – of the government securities.
The securities regulator immediately raised the issue regarding the amount of tax portion there, unless the 2013 repealing is considered valid.
If the flat 0.05 percent tax on trading value of listed securities in general remains applicable for the bonds, a Tk1 crore transaction would cost the broker Tk5,000 in tax – 100 times higher than his to be capped brokerage income of Tk50.
However, according to the unpublished documents for the upcoming finance bill, now the government is not going to reduce its 0.05 percent brokerage tax applicable on trading value of listed shares or mutual fund units.
It is preparing to take 10 percent of the brokerage fee each specific broker charges the clients while executing buy-sell orders of securities other than shares and mutual funds – effectively, bonds and debentures.
Good news for foreign trust and funds
Good news for the foreign investors is about to come, and that is the finance bill is going to include foreign funds and trusts with foreign companies who are paying 20 percent in source tax on cash dividends from companies registered here.
This makes sense, as most trusts and funds are the main sources of portfolio investments globally and generalisation error while drafting the provision concerned of Income Tax ordinance had long kept them subject to 30 percent tax on dividend income.
If the upcoming plan is finalised, foreign individuals along with entities other than company, fund or trust would be paying 30 percent in dividend tax in Bangladesh.
The tax is 20 percent for local institutional investors and 15 percent for local individuals.
In recent years, local individuals are enjoying the benefit of 10 percent dividend tax if they have a taxpayer identification number.