Placing five proposals for the national budget for FY2024-25, the Dhaka Stock Exchange (DSE) has urged the government to not impose further capital gains tax on individual investors in the upcoming budget.
Addressing a pre-budget press conference at Dhaka Club in Dhaka on Tuesday, DSE Chairman Professor Dr Hafiz Md Hasan Babu said, “The stock market is still under pressure due to the post-pandemic shocks and the Russia-Ukraine war. Imposing new taxes at this time will only create more pressure on investors.”
His call came after the National Board of Revenue (NBR) recently disclosed a proposal to impose a 15 per cent income tax on capital gains, which is now tax-free.
Hafiz also called for reducing source tax in the FY25 budget and proposed to decrease the corporate tax on listed companies by 2.5 per cent to 17.5 per cent from 20 per cent.
He said the corporate tax gap between listed and non-listed companies should be increased from 7.5 per cent to 10-12.5 per cent to encourage good companies in the capital market.
Currently, the corporate tax gap between listed and non-listed companies is 7.5 per cent.
Responding to a journalist’s query, Hafiz said that the preparation of the budget has already been completed does not mean that the budget has been passed. “Therefore, this press conference is being held based on the information we have about the proposed budget. We hope our proposals will be reflected in the final version of the budget for the capital market’s sake.”
He said they have already submitted their proposals and demands to the National Board of Revenue ahead of the tabling of the proposed FY25 budget in parliament, which will happen in the first week of June.
The DSE Board of Directors, present at the conference, highlighted the importance of the capital market that supports the livelihoods of about 10 million people in Bangladesh.
They outlined five critical demands for the FY25 budget, including a reduction in withholding tax on brokerage house transactions. They also demanded dividend income of up to Tk 50,000 to be tax-free and complete tax exemption on bond income.
The DSE chairman stressed the need for governmental financial policies that ensure the long-term stability of capital markets, particularly in a globalised economy.
He highlighted that 90 per cent of investors in the stock market are institutional investors, who currently face a 5-10 per cent tax on capital gains. “The remaining 10 per cent are individual investors. If individual investors are taxed on capital gains, it will negatively impact the market.”
DSE’s five demands
In a written statement, DSE leadership shared their five demands.
It said that taking into account the overall economic development of the capital market and the country, new taxes should not be imposed on the capital gains earned from the securities transactions of companies listed on the stock exchange and the tax rate stated in SRO No. 196 on the securities transactions listed on the stock exchange should be reduced.
The rate of tax deducted at source on transaction value may be reduced from 0.050 per cent to 0.020 per cent.
The global impact of the Covid-19 epidemic and the Ukraine-Russia war has left the capital market in a fragile situation and it is suffering from a severe liquidity crisis. As a result, tax at source on dividend income, if considered as a final tax like tax deducted at source on the profit of savings bonds, will increase the confidence of common investors and play a helpful role in reducing the liquidity crisis.
The corporate tax gap between listed and non-listed companies should be increased from 7.5 per cent to 10-12.5 per cent, said DSE.
Like zero coupon bonds, interest or income arising from any corporate bond listed on any board of stock exchange should be considered tax-exempt irrespective of the issuer or investor and is exempt from Section 106 of the Securities Income Tax Act 2023, on all types of bonds, including Sukuk.
Currently, the size of the corporate bond market is very small, which creates various constraints on capital markets as well as money markets. A vibrant bond market can help the economy in several ways. If all types of bonds are tax-exempt, it will encourage the establishment of a vibrant bond market that will facilitate financing operations by reducing reliance on bank loans to set up industries.
