The finance ministry may ask the National Board of Revenue to cut capital gains tax imposed on bourse shareholders to 5 per cent from the existing 15 per cent on condition that the shareholders invest their net sales proceeds in the capital market for three years’ duration, ministry sources said.
The ministry may also propose that the NBR cut tax on share transaction to 0.04 per cent from the existing 0.05 per cent and provide full tax waiver to the exchanges for last two financial years, they said.
The finance ministry, following receiving a set of proposals put forward by the Bangladesh Securities and Exchange Commission and getting consent from finance minister AMA Muhith to the pleas, drafted a set of proposals in this regard on September 4, they said.
BSEC chairman M Khairul Hossain on August 6 requested the finance minister to consider a number of proposals put forward by the commission for the interest of the country’s two stock exchanges — Dhaka Stock Exchange and Chittagong Stock Exchange — and the capital market.
After analysing the proposals, the ministry decided that tax on the bourses’ shareholders’ capital gains from sales of blocked shares should be 5 per cent from the current 15 per cent on condition that the shareholders invest the net sales proceeds in the capital market for three years’ duration, the sources said.
Under the DSE demutualisation scheme, 40 per cent shares of the DSE were credited to the DSE members’ accounts, while the remaining 60 per cent were kept in a blocked account. A Chinese consortium on September 4 bought 25 per cent shares from the blocked account to be strategic investor of the DSE and the bourse would float the remaining 35 per cent through an initial public offering.
On May 14, 2018, the DSE demanded a full waiver of the tax saying that it was not rational to collect 15 per cent tax from the shareholders of the bourses as they were paying 5 per cent tax on any profits and gains arising from the transfer of their shares.
As per section 53N of income tax ordinance 1984, the principal officer of a stock exchange must deduct tax at the rate of 15 per cent on any profits and gains arising from the transfer of shares of a shareholder of the stock exchange established under demutualisation act, 2013 at the time of transfer or declaration of transfer of such shares, whichever is earlier.
The issue of tax cut proposal came to the fore since the sales of the DSE shares to the Chinese consortium of Shenzhen and Shanghai stock exchanges.
The DSE members have been trying to persuade the finance minister to exempt them from the section 53N so that they do not require paying a hefty amount of money to the government exchequer after the sales of 25 per cent shares of the DSE to the Chinese consortium.
The Chinese group deposited Tk 947 crore against 45,09,44,125 ordinary shares of the DSE at Tk 21 each. As per the current tax rules, each DSE member will have to pay the government around Tk 30 lakh in capital gains tax.
The DSE in its pre-budget
proposals had also demanded an exemption from the section 53N. The DSE members also met with Muhith several times over the issue and the finance minister assured them that he would consider the matter.
In the September 4 draft, the finance ministry also decided to ask the NBR to reduce tax on share transaction to 0.04 per cent from the existing 0.05 per cent.
The DSE has been demanding reduction of the rate to 0.015 per cent.
The ministry may also recommend the NBR exempting the two stock exchanges from paying tax levied on their profits for the financial years of 2016-17 and 2017-18, but tax would be imposed on the bourses from the current fiscal year at 20 per cent rate separately.
The DSE, however, wants tax exemption for five financial years including the past two financial years.
DSE sources said the bourse wants the waiver to continue reforms under the demutualisation scheme and invest further in the infrastructure development.