Levying tax on capital gains of individual investors in the capital
market is a likely option the revenue board considers incorporating into
the upcoming budget, sources said.
The cue comes from the IMF
during review of its loan-package terms set for the government, which
include financial reforms some of which, analysts say, already began
creating pains.
Individual investors in the capital market have
enjoyed tax incentives since 2015, under fiscal measures aimed at
developing the fledgling securities market in Bangladesh.
According
to the sources, the move came following recommendations from the
International Monetary Fund (IMF) as one of the measures to trim down
tax expenditure and enhance revenues to attain its target of tax-GDP
ratio rise by 0.5 per cent within the next financial year (2024-25).
Currently,
an individual, except for sponsor -shareholders, is not required to pay
tax on gains from sales of shares of a listed company as per SRO 196
dated 30 June 2015.
In the Income Tax Law 2023, the National Board
of Revenue (NBR) has kept the provision unchanged to make the capital
market vibrant and facilitate marginal investors.
Sources say the
tax authority now envisages withdrawal of the tax benefits in some key
sectors, including capital market, which have been offered years back
and still in place.
Tax officials say it would be difficult to
mobilize higher domestic revenue unless the government phases out the
tax exemptions that ate up nearly 3.0 per cent of the tax-GDP balance.
"The
country's tax-GDP ratio is poor, 7.9 per cent, which is much criticised
by different quarters and economists while any move to withdraw tax
exemptions to widen tax net is also criticised at the same time," says
one revenue official.
The IMF has recommended that the NBR
withdraw the tax waivers on individuals' profit gains from share market
and impose tax at regular rate on their income.
Currently, capital
gains from transfers of state-owned enterprise (SOE) shares and
government securities, including treasury bonds, bills and other
government debt securities, are considered taxable. Also,
sponsor-directors and owners of over 10-percent shares have to pay
5.0-percent tax on capital gains from the transfers of their shares,
according to the SRO.
In Bangladesh, the capital -gains tax is 15 per cent if assets are held for five consecutive years and then transferred or sold.
In
a report submitted to the NBR on March 2024 after a ten-day discussion,
the tax-policy mission of IMF's Fiscal Affairs Department, comprising
David William Baar, Arbind Modi and David Robert Wentworth, recommended
repealing allowances and reductions, abolishing tax benefits on capital
gains for the share market, remittances, zero-coupon bonds and
investment rebates on bonds.
A senior tax official says the
recommendations of the IMF and other think-tanks are under active
consideration of the NBR, but "some sensitive issues need intensive
discussion and approval by government high-ups".
Chartered
Accountant Snehasish Barua, tax expert and a director at SMAC Advisory
Services Ltd, mentions that individual investors, both marginal and
large, are enjoying the benefits for long while the tax incentives are
meant for encouraging investment by small ones.
"The government
should analyse the data collecting from Bangladesh Securities and
Exchange Commission (BSEC) on how many small investors are getting
capital gains from share market and its volume," he says.
Accordingly, the revenue authority can set an exemption ceiling and impose tax on those getting higher profits, he suggests.
Until
April 25, 2024, there are 1.34 million Beneficiary Accounts (BOs) with
share balances in the country, Central Depository Bangladesh Limited
(CDBL) data showed.
Meanwhile, the IMF team carried on hectic
appraisal mission here ahead of release of the next tranche of a
US$4.7-billion loan the government has obtained from the multilateral
financier amid foreign-exchange crunch in the country.