The National Board of Revenue will collect at least Tk 11,000 crore in additional taxes from the reserves of the listed companies if the Finance Bill 2019 that was placed with the budget proposal is passed, according to a Dhaka Stock Exchange analysis.
Finance minister AHM Mustafa Kamal on Thursday placed the national budget for the financial year of 2019-20 where he proposed imposition of 15 per cent tax on retained earnings and reserve if the figure exceeded 50 per cent of the paid-up capital of a listed company.
As per the DSE data, there are 317 companies listed with the stock exchange. Of them, 209 companies have reserves exceeding 50 per cent of their paid-up capitals, 87 companies don’t have taxable reserves and 21 companies have negative reserves.
The 209 companies have Tk 97,901.27 crore in reserves. Of the amount, Tk 71,949.6 crore falls under the new tax measure.
The government would collect Tk 10,792 crore from the companies by imposing 15 per cent tax on the amount.
Market experts said that the figure might be higher as share premium would be added to the figure. Listed companies would soon declare their June-end yearly earnings that might enlarge their reserves.
A number of trade bodies and experts have already expressed their concerns over the budget proposal for imposing the tax on reserve and retain earnings saying that such move went against business norms and would hinder expansion of business of companies.
Of the 209 companies, 29 companies would need to pay more than Tk 100 crore each and 57 companies more than Tk 50 crore each as additional taxes to the government.
Titas Gas might require to pay additional Tk 762 crore, Bangladesh Export Import Company Tk 722 crore, Square Pharmaceuticals Tk 665 crore, Islami Bank Tk 397 crore, British American Tobacco Tk 333.19 crore, Investment Corporation of Bangladesh Tk 287 crore, Dutch-Bangla Bank Tk 278.62 crore, Jamuna Oil Tk 275 crore, Beximco Pharmaceuticals Tk 235 crore and BRAC Bank Tk 193.43 crore considering their paid-up capital and reserve.
Share market analyst and United International University professor Mohammad Musa told New Age that the tax imposition on companies’ reserves was against business and taxation norms.
He said that the new tax burden would paralyse the listed companies.
‘Why companies would have to pay tax on their taxed income?’ he asked.
He also said that tax imposition on stock dividend was not good as companies might require to raise paid-up capital or to go for business expansion.
There are some companies from which investors expect stock dividends, he said.
He said, ‘The DSE’s appreciation of the proposed tax imposition shocked me as there is nothing in the budget that could bring positive atmosphere to the market. The only bright point in the budget for the stock market is an increase in tax-free dividend income limit.’
Mutual Trust Bank chief executive officer Anis A Khan said that the move was irrational, against free-market norms and contradictory to Bangladesh Bank rules and regulations.
Banks and financial institutions require adequate capital as per BB rules and must maintain a portion of capital as per Basell-III requirements, he said, adding, ‘Besides, a bank requires to reserve 25 per cent of its net profits as per BB rules.’
Anis, also vice-president of the Bangladesh Association of Publicly Listed Companies, said that the taxation would weaken banks’ capital base and bar them from expanding their business and providing loans.
The move would also discourage new companies to come to the capital market, he said.
He, however, said that the government should have provided rebate to the companies for declaring cash dividends to encourage announcement of such dividend.
The Institute of Chartered Accountants of Bangladesh in its post-budget review on Saturday said that the imposition of 15 per cent tax on reserve and retained earnings of listed companies would reduce capitals of the companies and their expansion scope.
ICAB president AF Nesaruddin said that the tax imposition on stock dividend and retained earnings and reserve was unprecedented, irrational and against the business norms.
Reserve increases capability of a company and provides comport during its financial crisis, he said.
The Metropolitan Chamber of Commerce and Industry in its post-budget reaction on Friday expressed its concern whether imposition of 15 per cent tax on stock dividend would achieve the government’s goals to rejuvenate the stock market.
It said that the move might discourage the listed companies in capital creation and reinvestment.
The imposition of tax on equity is wrong in principle, it said.
The body urged the government to reconsider the proposal.
Stock investors are puzzled about the budget proposal as the tax imposition on the listed companies would benefit the government not the investors as the tax burden would ultimately fall on them, market operators said.
Meanwhile, the Bangladesh Association of Publicly Listed Companies demanded a number of amendments to the proposed finance bill.
The association said that unilateral imposition of tax at the rate of 15 per cent on reserve was unjustified.
It requested the government to remove the provision from the finance bill.
The body also said that 15 per cent tax on stock dividend was contradictory to the Bangladesh Securities and Exchange Commission notification issued on May 23, 2019 which says that company can declare bonus dividend by clarifying justified reasons for declaring bonus share and its utilisation.
It urged the government to reconsider the matter.
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