FE Report
Dhaka Stock Exchange came down hard on the budget, saying the proposed capital gains tax on institutional investors and tax at source on brokerage commissions would dent the growth of the share market.
"These proposals will seriously affect the market and derail its growth," said Shakil Rizvi, DSE president, at a post-budget briefing, on Saturday.
In his second budget for the Awami League government, Finance Minister AMA Muhith imposed a ten per cent tax on companies trading shares in the bourses and tax at source on commissions collected by stockbrokers.
He also slapped five per cent tax on income of sponsor shareholders or directors of companies engaged in trading in the Dhaka and Chittagong stock exchanges and three per cent tax on the shares of companies sold at a premium value.
Rizvi said the fallout of the tax proposals would be "severe" and affect all including the fat cat traders and some 2.5 million individual investors.
"Everyone will have to bear the brunt as the government has hugely increased tax on commissions collected by the brokers. The brokerage houses will pass the tax burden on traders," he said.
Presently, the brokerage houses collect Tk 0.04 as commission from every transaction worth Tk 100. They pay Tk 0.025 to the government exchequer and keep the rest.
Rizvi said the proposed tax rate of 0.1 per cent represents a 300
per cent hike, meaning the brokers will need to collect Tk 0.12 as commission on every transaction worth Tk 100.
"It is too high and will mainly affect millions of small traders," Rizvi said.
"Besides, it will derail expansion drive of the brokers. Many brokerages have planned to take their branches to the district towns. They may now rethink about their plans," he said.
DSE president proposed that the government impose five per cent tax on companies' income from share trade, instead of 10 per cent, and fix the tax on brokerage commissions at 0.035 percent instead of 0.1 percent.
He said the proposed tax on premium value of shares violates the country's income tax laws, as "the premium value is a part of capital of a company not revenue".
Arif Khan, president of Bangladesh Merchant Bankers' Association, said the market could witness massive sell-offs in the next three weeks, as the proposed taxes may prompt institutional investors to dump their holdings.
"There are many institutions that haven't realised their capital gains yet. They would now try to avoid the tax net by selling shares before the new fiscal year begins," he said.
"These selling pressures could destabilise the market," he said.
Khan said the 10 per cent tax on the company engaged in share trading is also "too high", suggesting that the government instead impose a "two-tier" taxes.
"It can impose maximum five per cent tax if an institution makes profits within a year; but in case of investment for more than a year, the rate should be much lower," he said.
Khan, a deputy managing director of IDLC Finance, said the two-tier taxes would "encourage more fundamental or long-term investment" in the market.
Brokers and merchant bankers said the tax on premium value would discourage the companies, which are planning to be listed on the exchanges.
The DSE president said the government should make the proposed Tk16 billion Bangladesh Infrastructure Finance Fund (BIFF), as a tradable stock in the capital market.
He said the government could easily reduce its budget deficit to three per cent - instead of five per cent forecast in the budget -- by off-loading shares of state-owned enterprises.
"This will reduce the public deficit to a great extent, replenish the bourses with quality shares and stabilise the market, he said.
In 2008, the government raised more than Tk 20 billion from the capital market by off-loading SoEs' shares.
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