To ensure the stability of the capital market and benefit investors, the Dhaka Stock Exchange (DSE) has put forward five key proposals for the upcoming 2024-2025 national budget.
On Tuesday, May 28, DSE Chairman Dr. Hafiz Mohammad Hasan Babu presented these budget recommendations during a pre-budget press conference held at the Dhaka Club.
Key Proposals
Among the notable recommendations are:
Final Settlement of Withholding Tax on Dividends: The DSE suggests treating the withholding tax on dividends for individual investors as a final settlement.
Reduction in Corporate Tax for Listed Companies: To encourage more companies to get listed, the DSE proposes lowering the corporate tax rate for listed companies.
Tax Exemption on Bond Interest Income: The DSE recommends that interest income from bonds be made tax-exempt.
No New Taxes on Capital Gains from Securities Transactions: The DSE advises against imposing new taxes on capital gains from securities transactions on the stock exchange.
Proposed Corporate Tax Adjustments
In its budget proposal, the DSE advocates for reducing the tax rate for all listed companies and increasing the gap between the tax rates of listed and non-listed companies to 12.5%, up from the current 7.5%.
Encouraging Listings and Ensuring Fair Taxation
The DSE believes that the gap between the corporate tax rates of listed and non-listed companies should be increased from 7.5% to either 10% or 12.5%. This can be achieved by reducing the tax rate for publicly traded companies while increasing the rate for non-publicly traded companies. Such measures are expected to encourage more multinational and financially stable local companies to list on the exchange. The DSE strongly believes that such unprecedented steps will support the Ministry of Finance’s long-standing efforts to promote government share listings.
Despite their relatively small numbers, listed companies make significant contributions to direct income tax revenue due to their adherence to legal and regulatory frameworks. The DSE is confident that, under the effective guidance of the Bangladesh Securities and Exchange Commission (BSEC) and stringent monitoring by the stock exchange, corporate income tax revenue will continue to grow even if the tax rate for listed companies is reduced.
Reducing Securities Transaction Tax
Currently, a 0.05% tax is collected on the value of securities transactions conducted through stock exchange members, with the exchange’s income being 0.025%, or half of the collected tax. This rate is significantly higher compared to neighboring countries. Therefore, the DSE recommends reducing this tax rate to align with international best practices.
The Dhaka Stock Exchange (DSE) has proposed reducing the source tax on transaction value from 0.05% to 0.020%, a rate previously set at 0.015%.
Dividend Income Tax Adjustments
DSE recommends treating withholding tax on dividend income as a final tax liability, similar to the treatment of profits from savings certificates. Although the first fifty thousand takas of dividend income is no longer exempt under the Income Tax Act, 2023, it was previously allowed under the Sixth Schedule, Part A, Paragraph 11A of the Income Tax Ordinance, 1984.
Encouraging Small Investors
Given the current state of the capital market, DSE suggests exempting the first fifty thousand takas of dividend income from taxable income. This move is aimed at attracting small investors to the capital market, thereby increasing overall market transactions and tax revenue, which will contribute to sustainable market development.
Impact of Global Events
DSE argues that the global impacts of the COVID-19 pandemic and the Ukraine-Russia war have left Bangladesh’s capital market in a precarious situation, leading to severe liquidity issues. Addressing the proposed tax changes would boost investor confidence and help alleviate the market’s liquidity crisis. Since dividends are paid from post-tax profits, the withholding tax on dividends effectively results in double or even triple taxation for subsidiary companies. Treating dividend tax as a final tax would encourage more investment in the capital market, supporting various industrial financing efforts and enhancing overall market activity, profitability, and dividend distribution, ultimately increasing tax revenue through the capital market.
Tax Exemption on Bond Interest
DSE proposes that interest or income from any corporate bond listed on any stock exchange board, similar to zero-coupon bonds, should be exempt from tax for both issuers and investors. Alternatively, all types of bonds and asset-backed securities, including Sukuk, could be exempted from Section 106 of the Income Tax Act, 2023.
Developing a Robust Bond Market
DSE argues that the small size of the current corporate bond market creates limitations in both the capital and money markets. A vibrant bond market could benefit the economy in various ways. Tax exemptions for all types of bonds would encourage the development of a dynamic bond market, reducing reliance on bank loans for industrial financing.
Capital Gains Tax on Securities Transactions
DSE has proposed not imposing new taxes on capital gains from transactions in listed securities. Considering the overall economic development of the country, DSE requests that no new capital gains tax be imposed on securities transactions of listed companies and that the existing tax rates outlined in SRO No-196-Law/Income Tax/2015 be reduced.
These proposals aim to stimulate the capital market, attract more investors, and ensure sustainable economic growth.
