In a bid to inspire institutional investment in the capital market, the securities regulator has requested the government to waive capital gains tax for institutional investors.
Currently, local individual investors do not have to pay any taxes on capital gains from listed securities. Institutions also used to enjoy the same benefit prior to the imposition of the current 10 percent gains tax.
In a recent letter to the finance minister, the Bangladesh Securities and Exchange Commission (BSEC) requested the government to waive the 10 percent tax, or at least reduce it to 5 percent, so that the capital market gets more institutional investment – believed to be an agent of market stability.
The regulator also requested the government to reduce capital gains tax for foreign portfolio investors to 10 percent from the existing 15 percent so that their net sell orders in the stock market come down. The tax deducted at source was previously 10 percent.
To attract more investment in bonds, the capital market regulator recommended a declaration of no tax on income from any bonds, applicable to all classes of investors.
Currently, all investors except banks, insurance companies and non-banking financial institutions (NBFIs) are entitled to tax-free income from zero-coupon bonds only.
The BSEC also requested for a way to inspire bond issuance for long-term corporate financing instead of the existing sole-dependency on bank loans.
"If any non-financial company – other than banks, insurance companies and NBFIs – collects at least half of its long-term capital through issuing corporate bonds, we request to reduce their corporate tax rate by 5 percentage points," reads the BSEC letter signed by its Chairman Professor Shibli Rubayat-Ul-Islam.
Besides, the BSEC requested the government to consider taxes at source on cash dividends from listed securities as the ultimate tax liability of the concerned investors. That would inspire institutions to invest more in listed companies.
The regulator also assured investors that if the proposals for tax cuts are accepted, that would not harm the government's revenue collection from the capital market, rather it would increase manifold because the requested moves would significantly increase investment and activities in the stock market.
The regulator, despite no obligation, is collecting Tk200 from each investment account annually to hand over around Tk65 crore each year to the government. This reflects that the BSEC understands the government's need for revenue.
In the last decade, the capital market contributed nearly Tk10,000 crore to the national exchequer in the form of various taxes and fees despite its prolonged depressed phase.