Tax on the value of stock dividend at the rate of 15 per cent will be collected from the listed company within sixty days of such declaration, according to the National Board of Revenue.
Investors, market experts and different trade bodies expressed their concerns over the budget proposal for the stock market saying that it was ‘deceptive’.
The government also imposed 15 per cent tax on retained earnings and reserves if the figures exceed 50 per cent of the paid up capital of a company.
Finance minister AHM Mustafa Kamal on Thursday placed the national budget for the financial year of 2019-20 before parliament.
Different trade bodies have expressed their concerns over the unprecedented tax imposition on stock dividend saying that such tax imposition is opposite to the international practices.
They said that the move would damage the sector in the long run.
The Metropolitan Chamber of Commerce and Industry in its post-budget reaction doubted whether imposition of 15 per cent tax on stock dividend would achieve the government goal of rejuvenating the stock market.
It said that the move might discourage listed companies in capital creation and reinvestment.
The MCCI was alarmed that tax has been proposed on retained earnings if the figure exceeds 50 per cent of paid up capital of a company.
Imposition of tax on equity is wrong in principle, it said.
‘Also retained earnings is made up of taxed income, therefore this is double tax on the same income.’
This will discourage capital creation and reinvestment, it said.
‘We strongly urge the government to reconsider this proposal,’ it said.
However, the association appreciated the government as it has increased the tax-free limit of dividend income for investors in the stock market to Tk 50,000 from Tk 25,000 to make the capital market vibrant.
The stock investors are puzzled as to how the tax imposition on the listed companies would benefit them as the tax would ultimately fall on them.
They are sceptical about whether the tax rules would be applicable to the companies who declare both stock and cash dividends.
It may push the companies to declare no dividend or poor cash dividend. The companies will rampantly cook the books to avoid tax on the reserves and retained earnings.
Market operators said that the capital market regulator Bangladesh Securities and Exchange Commission on May 23 tightened rules for the companies who declare stock dividends saying that no stock dividend would be declared without any justified reason for business expansion.
The government, however, provided reasons that it took the initiative as the companies are generally distributing stock dividend instead of cash dividend, and the investors were deprived of their deserved returns.
The government also noticed that some companies’ retained earnings or reserve swelled as they did not distribute the net profits as dividend to their investors.
Dhaka Stock Exchange Brokers’ Association president Shakil Rizvi said that the proposed budget had given importance to the capital market.
The tax on the stock dividend, reserve and retained earnings will contribute positively to the growth of the capital market, he said.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Tax