Market insiders fear that tax break reductions disincentivise quality companies from going public. They say that reducing the corporate tax rate gap between listed and non-listed companies will discourage good-quality and fundamentally strong companies from getting listed in the capital market.
Finance Minister Abul Hassan Mahmood Ali has proposed increasing the corporate tax rate for listed companies to 22.5 per cent for the upcoming fiscal years 2024-25 and 2025-26, up from the current rate of 20 per cent. This adjustment aims to reduce the tax differential between listed and non-listed companies from 7.5 per cent to 5 per cent.
While tabling the budget proposal, the minister said, "Currently many sector-wise company tax rates are effective. I propose to conditionally make the tax rate from 27.5 per cent to 25 per cent for companies that are not publicly traded as defined in the Income Tax Act, 2023.
"In this case, all types of income and receipts and all types of expenses and investments above Tk 5 lakh in each single transaction and above Tk 36 lakh in total annually must be done through bank transfer," he added.
"In order to further formalise the economy and encourage the establishment of one-person companies, I propose to raise the one person company tax rate from 22.5 per cent to 20 per cent, subject to compliance with the same conditions as non-listed companies," he proposed.
While speaking to The Business Post, former president of Bangladesh Merchant Bankers Association (BMBA) and EBL Securities Managing Director Sayedur Rahman said, "Reduction in the tax rate gap between listed and non-listed companies will make it less incentivised for companies to get listed on the stock exchange."
"On the other hand, imposing a tax on capital gains above Tk 50 lakh is projected to discourage investors, particularly high-net-worth investors, from increasing their capital market exposure," he said.
Meanwhile, EBL Securities, a brokerage, in its review of the national budget for FY25, said that the 2.5 per cent reduction in the income tax gap between listed and non-listed companies and the source tax for sponsors and directors will further discourage good-quality and fundamental companies from getting listed in the capital market.
Managing Director and CEO at VIPB Asset Management Company Shahidul Islam, while speaking to The Business Post, said, "The difference between corporate tax rates of listed and unlisted companies has been narrowed. This will reduce the incentive for the unlisted companies to get enlisted.
"The depth and growth of the capital market will be negatively affected," he explained.
Dhaka Stock Exchange (DSE) Director Richard D' Rozario told The Business Post, "The barrier should be increased to attract more companies to be listed. Data shows that whenever a company is enlisted, its turnover rises and tax and VAT collections significantly increase as the company comes under the scrutiny of different regulatory bodies."
"Taxation is not the reason behind the problems in the country's capital market," said National Board of Revenue (NBR) Chairman Abu Hena Md Rahmatul Muneem, in response to journalists' questions at a post-budget press conference in Dhaka on Friday.
"Tax incentives had long been there for the capital market, and that did not help build it," he said.
Before the budget session began, DSE Chairman Prof Dr Hafiz Md Hasan Babu said that the corporate tax gap between listed and non-listed companies should be increased from 7.5 per cent to 10-12.5 per cent.
Chittagong Stock Exchange (CSE) Chairman Asif Ibrahim noted before the budget session began that, for a stable capital market, this number needs to be increased to a satisfactory one within the next five years by listing good-quality companies.
He also demanded that the corporate tax rate gap between listed and non-listed companies be increased by at least 10 per cent.
"Additionally, the newly listed companies require tax exemption for at least two to three years," Asif said.
