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 New tax may rattle stocks Say brokers and merchant bankers

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Posts : 105
Join date : 2010-05-27

PostSubject: New tax may rattle stocks Say brokers and merchant bankers   Sun Jun 13, 2010 6:15 am

Star Business Report

The proposed tax on the income of institutional investors may upset stockmarket, as a selling spree will continue throughout this month before the new measure becomes effective, stockbrokers and merchant bankers said yesterday.

They also criticised the government proposal to impose tax at source on commissions received by stockbrokers, saying it would hamper market growth.

They urged the government to revise the rate at 0.035 percent instead of the proposed 0.1 percent.

The proposal of imposing tax on premium value of shares also contradicts the income tax rules, as the premium value is not added or showed in the balance sheet of a company, said the stockbrokers and merchant bankers.

The premium is not profit for a company, they said in a post-budget press briefing organised by Dhaka Stock Exchange at Dhaka Sheraton Hotel yesterday.

"There are many institutions that have unrealised capital gains, and there will be a tendency to realise the profits by selling shares from their portfolio within June 30 to avoid the tax," said Arif Khan, president of Bangladesh Merchant Bankers' Association.

"If such selling pressure comes from them, it will destabilise the market."

A proposal has been made in the budget for fiscal 2010-11 to impose for the first time a 10 percent tax on a company that profits from share trade.

Khan said the 10 percent tax in one go was too high. "The government could impose tax in two tiers -- maximum 5 percent, if an institution makes profits within a year, and the rate should be much lower in case of investment for more than a year," he said.

It will encourage long-term investment, said Khan, also deputy managing director of IDLC Finance.

The stockbrokers also urged the government to set the tax on companies' income from share trade at 5 percent.

"In our pre-budget recommendations, we proposed a 3 percent tax on capital gains of institutional investors. However, the rate can be as high as 5 percent," said Md Shakil Rizvi, president of the DSE.

He also said the proposed tax at source on brokerage commissions will seriously affect the growth of the market, which is still at a developing stage.

It will also hurt the individual investors, as the brokerage houses will have to increase the rate of commission, which is actually realised from investors for every trade, Rizvi said.

Presently, the brokerage houses receive Tk 0.04 from every Tk 100 transaction, or 0.04 percent, as commission on an average and pay Tk 0.025 to the government exchequer.

The proposed tax rate of 0.1 percent shows a 300 percent rise, meaning the brokers will need to receive commission on an average at Tk 0.12. "It will be too high," said the DSE president.

"Besides, the brokers will not go for expansion," he said.

Other brokers and merchant bankers said the private sector companies do not want to be listed on the market, and the bourses always persuade them into the market even with premium value. But, the tax on premium value will discourage the companies to be listed, they added.

The shares with premium value or without premium value are related with a company's paid-up capital. The money raised through floating shares is not a company's income or profit, so is not shown in the balance sheet, they explained.
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