A finance ministry committee has made 18-point recommendations to develop the country’s bond market, including rationalisaiton of taxation and process simplification.
The interministerial committee, headed by finance ministry’s Financial Institutions Division senior secretary, has recently submitted its recommendations to the finance ministry on how to develop the country’s long-term financing and the capital market.
The FID on July 8 asked several government agencies to take necessary steps on an emergency basis to implement the recommendations.
In letters to the Bangladesh Bank, National Board of Revenue, Bangladesh Securities and Exchange Commission, Finance Division, Internal Resources Division and Insurance Development and Regulatory Authority, the division said that implementation of the recommendations was essential for development of the country’s long-term financing and the capital market.
The committee was formed with representation from the finance ministry, Bangladesh Bank, NBR, BSEC, IDRA, Dhaka Stock Exchange, Federation of Bangladesh Chambers of Commerce and Industry and Association of Bankers.
The recommendations include imposition of a lump sum stamp duty instead of existing rates on paper-based bonds and exemption of duty for dematerialised bonds and other securities, collection of advance income tax on final stage of income from investment in bonds, providing tax benefits, which is now applicable only on zero coupon bond, to all kinds of bond and all types of investors and imposition of transaction fee as a reasonable lump sum amount on trade of bonds instead of rates on volume of transactions made – now in vogue for shares.
The letter said that stamp duties at higher rates on bonds would discourage investors resulting in hindrance in development of the bond market.
The other recommendations related to rationalisation of taxation will help development of the bond market, it said.
The central bank should also rationalise the interest rates for long-, medium- and short-term bonds based on their demand and supply in the market instead of the existing system.
Currently, the BB determines the rate for seven-year-long bonds based on three-month fixed deposit rate.
The committee also recommended excluding the capital market exposure calculation for banks in case of investment in bonds and simplifying the bond approval process by avoiding delay caused by dual scrutiny by the BSEC and the central bank.
According to the existing procedures, the BESC approval of bond issuance is sent to the central bank for no-objection certificate causing delay in the approval process due to the dual scrutiny of the same activities, the committee mentioned.
The BB should also treat a bond defaulter as a loan defaulter in its database of the credit information bureau so that the bond defaulters do not get loans from the banks.
The committee also recommended that the Finance Division should issue Taka-denominated sovereign bonds to demonstrate Bangladesh’s financial capacity abroad.
Steps should also be taken to encourage institutional investors to invest their pension fund in the bond market, the letter said.
The committee further recommended that the BSEC ought to expedite the automation process, establish a specialised rating agency and introduce direct transactions between issuers and investors for the bond market
The FID in its letter to the heads of the agencies said that implementation of the recommendations was very vital to develop the country’s capital market.
The division will evaluate the progress of the implementation of the recommendations on a quarterly basis, the letter said.
Former Bangladesh Institute of Bank Management director general Toufiq Ahmed Chowdhury termed directives as bureaucratic exercise that would not be effective in improving the secondary bond market.
There should be specific directives for introducing secondary bond market where government-sponsored bonds can be traded, he said.
This will encourage the private sector to issue more number of bonds for raising capital for long-term investment, he said.
Besides, the government can also increase interest of long-term borrowings and influence private investors to issue bond for capital, he added.
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