Stocks
DBA Urges Reversal of Capital Gains Tax, Lists 7 Key Recommendations
In response to the 2024-25 national budget’s imposition of a capital gains tax on stock market investments, the DSE Brokers Association of Bangladesh (DBA) has made a fervent plea to reconsider.
Considering the current market conditions and the financial strain on investors, DBA has outlined seven crucial recommendations, calling for the withdrawal of the proposed capital gains tax.
At a post-budget press conference held at the DSE Brokers Club on June 11, DBA President Saiful Islam articulated the organization’s stance and suggestions.
The DBA’s recommendations on the proposed budget are as follows:
- Exempting Capital Gains from Taxation: To stimulate investment and support market growth.
- Rationalizing the Tax Rate for Brokerages: Simplifying and reducing the tax burden on brokerages to enhance their financial stability.
- Clarifying Existing Laws on Capital Losses: Providing clear interpretations and extending the capital loss carry-forward period to seven years.
- Roadmap for State-Owned Enterprise Listings: Encouraging the listing of government enterprises to broaden market depth.
- Adjusting Corporate Tax Rates for Non-Listed Companies: Ensuring corporate tax rates do not exceed the highest personal tax rates.
- Allowing New BO IDs to Operate Tax-Free for Three Years: Promoting new account openings and market participation.
- Making Margin Losses Tax-Deductible: Allowing investors to deduct margin losses from taxable income to ease financial pressure.
During the press conference, DBA highlighted that the proposed budget imposes a tiered tax on capital gains exceeding 50 lakh taka. Additionally, investments held for over five years would be subject to a 15% tax on the gains. Given the prolonged market downturn and financial struggles of investors, DBA strongly recommends the removal of this tax proposal.
Currently, brokerages face a dual-layer tax system. They pay 0.05% on securities transactions and a corporate income tax, with the higher amount being considered the final tax. This dual taxation, especially during market slumps, can result in tax rates exceeding 40%, severely impacting brokers. Brokerages play a vital role in attracting investors and facilitating crucial securities transactions. Their financial health is essential for market development. To maintain brokerage viability, DBA suggests reducing the transaction tax to 0.025% and treating corporate income tax as the final tax for brokerages.
Regarding capital loss legislation, DBA notes that while the budget proposes taxing capital gains, the current law allows for capital losses to be carried forward or adjusted for up to six years. DBA recommends extending this period to seven years and providing clear and effective interpretations of the existing laws to support investors better.
In light of the proposed capital gains tax in the 2024-25 national budget, the DSE Brokers Association of Bangladesh (DBA) has highlighted the dire financial state of investors due to prolonged market downturns. DBA asserts that many investors are grappling with significant financial losses. By allowing capital loss carry-forward or adjustment alongside the proposed tax on gains exceeding 50 lakh taka, investors can better preserve their capital, benefitting the market and all stakeholders. This approach would strengthen investors financially, thereby enriching the market and increasing government revenue.
Regarding the listing of state-owned enterprises (SOEs), DBA emphasizes that there has been minimal progress over the past decade. They call for a clear roadmap to encourage SOE listings, aligning with Prime Minister’s directives. Such a roadmap would foster competitive, high-quality businesses, boosting market liquidity and expansion, ultimately enhancing government revenue through expanded business operations.
The proposed budget sets the highest individual tax rate at 30%. However, corporate tax rates for non-listed companies fall below this threshold, with only a 2.5% difference between listed and non-listed entities. Considering the contributions of listed companies to social activities and market promotion, DBA suggests setting the corporate tax rate for non-listed entities above the highest individual tax rate and reducing the tax rate for listed companies, provided they regularly publish comprehensive financial reports.
DBA also highlights the need to increase market participation by creating new investors. Currently, only 1% of the population has active BO accounts, compared to 28% and 67% for banking and mobile financial services (MFS), respectively. Encouraging the transition of these account holders to stock market investments could generate significant capital gains, interest, and dividend income, thereby increasing government tax revenue. To achieve this, DBA proposes allowing all new BO accounts with investment limits up to 10 lakh taka to operate tax-free for three years. Additionally, BO accounts held by students, underprivileged individuals, disabled persons, and senior citizens should enjoy a zero tax rate on profits.
DBA identifies margin losses as a significant barrier to market development, causing many investment accounts to become inactive and exacerbating liquidity issues in recent years. To address this, DBA recommends that the National Board of Revenue (NBR) allows margin losses to be tax-deductible, providing an incentive for lenders and helping to financially rehabilitate these investments, thus increasing market participation.
Reviewing the U.S. Stock Markets, the Nasdaq Composite, recorded a decent loss of 1,023 points, reaching a closing value of 16,690 points by the end of the week. Similarly, the S&P 500 index showed a positive trend, losing 240 points to settle at 5,408 points. Meanwhile, DJIA Index experienced a notable hike, adding 1,218 points during the week and concluding at 40,345 points after a week of gaining.
In contrast, Russell 3000 Index saw a loss in week performance, with a slight drop of 141 point to reach 3,077 points by the end of the week.
Moving to Russell 2000 Index, demonstrated a notable lost of 126 points, ending the week at 2,091 points.
In the Outgoing week, the European stock market displayed a mixed performance.
Here is the data on the weekly performance of the European Stock Market, The STOXX Europe 600 index, which is considered a leading benchmark for the European market and covers approximately 90 percent of the market capitalization across 17 countries, reported a loss of 18.49 points to close at 506.56.
The United Kingdom’s FTSE 100, one of the most widely followed indices in Europe, also showed a significant drop, losing 195 points or finishing the session at 8,181.
In Germany, the DAX 30 index, added by 605 points to reach 18,301, while France’s CAC 40 decreased by 278 points to stop at 7,352 at the end of the trading day.
Italy’s FTSE MIB, which covers the top 40 stocks traded on the Milan Stock Exchange, decreased by 1,081 points to 33,291. However, Spain’s IBEX 35, lost by 228 points, to close at 11,173.
A review of South Asian stock markets shows that India’s Bombay Stock Exchange (BSE) index BSE Sensex has lost 1,182 points during the week. At the end of the week, the index stood at 82,365 points. On the other hand, the Nifty-50 index of the country’s National Stock Exchange dropped by 383 points last week. At the end of the week, the index stood at 24,852 points.
Pakistan Stock Exchange Index ‘KSE 100’, added 459 points last week. After a week of losing, the index settled at 79,002 points.
On the other hand, The Sri Lankan stock market index loss, and the Colombo Stock Exchange index ‘ASPI’ decreased by 94 points in a week. After a week the index settled at 10,775 points.
Bhutan’s stock market index ‘BSI’ dropped by 9 points hence the index stood at 1,500 points throughout the whole week. Nepal’s ‘NEPSE’ lost 22 points, therefore the index stands at 2,727 points.
Hence Dhaka Stock Exchange: The benchmark index ‘DSEX’ lost by 75.77 points or 1.31 percent, in the outgoing week. At the end of the week, the index stands at 5,728 points.
