Sarwar A Chowdhury
The government has proposed, for the first time, a 10 percent tax on institutions that profit from share trade.
However, no taxes have been placed on the capital gains made by individuals -- a much-debated issue that has had impacts on the market on many occasions prior to announcement of the budget for the fiscal 2010-11.
A 5 percent tax on the income made by sponsor shareholders or directors of listed companies has also been proposed in the new budget.
Also, the government considers imposing a 3 percent tax on the premium value of shares.
The budget further proposed tax at source on commissions received by the members of the stock exchanges. However, the rate was not mentioned.
"I've proposed imposing lower rates of taxes," Finance Minister AMA Muhith said.
The minister made it clear that the "income earned by individuals through trading of shares of any listed company shall remain out of the purview of taxation."
A leading institutional investor however said the taxes on the income of a company from share trade "is not a welcome move".
"To encourage more fundamental or long-term investment, the tax rate should be lower. If an institution makes profits within a year, the tax rate can be 5 percent. In case of investment for more than a year, the rate should be lower," said Arif Khan, deputy managing director of IDLC Finance.
"The 10 percent tax is too high," he said, adding that the government, without imposing taxes on capital gains, can use the capital market as a strong vehicle for infrastructure and industrial development.
Khan lauded the government for not imposing taxes on the profits made by individual investors.
The finance minister said,"Our government is firmly committed to maintaining steady growth and development of the capital market."
The market capitalisation stood at 21.4 percent of GDP, following keen interest shown by investors, and by the end of April 2010, capitalisation rose to 34.2 percent.
By the end of April 2010, the number of BO (beneficiary owner's) accounts increased to over 25 lakh. "It cannot be denied that given the growing number of ordinary investors in the capital market, the limited supply of securities and investors' expectation for more profit at times makes the market volatile," Muhith said, listing the steps already taken by the government to maintain market stability.
He said market monitoring has been strengthened; loan-margins have been re-fixed; rules regarding alternative evaluation procedure of shares, such as the book building method, have been formulated and an over-the-counter (OTC) market has been introduced at Dhaka Stock Exchange to transact securities of de-listed companies.
"Establishing the Bangladesh Institute of Capital Market is also under the government's plan. We want to improve institutional governance by enhancing the capacity of the investors, intermediaries and companies," Muhith said.
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