NBR under fire for its plan to deduct tax at source

The tax administrator plans to deduct tax at source of cash dividends offered by mutual funds—a move that came under severe criticism from the fund managers.

“Any companies registered in Bangladesh or any funds, mutual funds and units of resident shareholders or non-resident shareholders registered by any other companies are subject to a deduction of tax at source from cash dividends as per the Income Tax Ordinance rules,” said the NBR in an opinion in response to a chartered account firm.

AIMS Managing Director Yawar Saeed said, “Earlier, there was no such provision. The NBR’s move will bode ill for the mutual fund sector.”

“We’ve already written to the BSEC in this regard. NBR has only given an opinion on it. However, it will take more time to be finalised.”

Head of Legal and Compliance of LR Global Bangladesh Limited Monowar Hossain, said, “We’re trying to attract investors by declaring healthy dividends as they usually get a lukewarm response from the investors. If the provision of tax deduction at source is implemented, the sector will be affected badly.”

According to him, mutual funds account for only 2 per cent of the total market capitalization of the Dhaka Stock Exchange.

Bangladesh Merchant Bankers Association (BMBA) President Sayadur Rahman said, “The opinion given by the NBR is unrealistic. “It needs to be solved right away to safeguard unit holders of mutual funds,” he said.

“We’re working on it,” said Bangladesh Securities and Exchange Commission (BSEC) spokesperson Rezaul Karim.

Of the 36 listed mutual funds (MFs) that maintain the July-June accounting year, among them, 20 MFs disclose their financial statements.

Of them, 16 MFs declared lower dividends, two announced higher dividends, and another two declared dividends at the same rates they had given in the previous year.

Meanwhile, out of the 20 MFs, 19 funds’ earnings per unit (EPU) fell in FY22 compared to the previous year.

MF’s asset to gross domestic product (GDP) in Bangladesh, which is only 0.53 per cent, is the lowest among emerging economies. The ratio is 11 per cent for India, followed by 32 per cent for Malaysia, 1.51 per cent in Pakistan, 73 per cent in the UK and 118 per cent in the USA. The global average is 62 per cent.

However, there are about 50 Asset Management Companies (AMCs) in Bangladesh, in contrast to 49 AMCs in India.