DSE calls for a wider tax gap, no capital gains tax imposition

Infographics: TBS

The Dhaka Stock Exchange (DSE) has urged the National Board of Revenue (NBR) not to impose a capital gains tax on earnings from buying and selling shares listed on the bourses in the upcoming 2024-25 budget.

The demand comes at a time when the stock market is going through a volatile period, fearing the imposition of 15% capital gains tax. Currently, earnings from buying and selling shares are exempt from such taxes. 

In a proposal to the NBR, the premier bourse also outlined a five-point demand which includes a tax cut and widening of the tax gap between listed and non-listed companies by at least 10% to 12.5%. Additionally, the DSE requested that the first Tk50,000 of dividend income remain tax-free.

The bourse also proposed tax exemptions for income from listed bonds and a reduction in the source tax on securities trading.

DSE Chairman Professor Dr Hafiz Md Hasan Babu presented these demands at a press conference on Tuesday, after submitting the proposal to the NBR earlier in the day.

Prof Hafiz said, "The capital market has fallen into a delicate situation due to the global impact of Covid-19 pandemic and the subsequent Russia-Ukraine war."

"The capital market is suffering from a liquidity crisis and to support the market during these challenging times, tax benefits should be provided in the upcoming budget," he added.

Emphasising the need to reduce the source tax collected from stock exchange members, he said, "Currently, a 0.05% tax is levied during share transactions, which is significantly higher compared to neighbouring countries. This high tax rate makes it difficult for brokerage houses to survive." 

He further said that he has proposed (in the letter to the NBR) to reduce this rate to 0.020% to align with international practices.

The DSE chairman also demanded that dividend income tax at source be considered as the final tax. 

He stated that in the calculation of taxable income, the first Tk50,000 of dividend income was exempted as per a directive which was later removed in the Income Tax Act 2023.

This exemption should be reinstated given the current market conditions, he added.

The corporate tax gap should be at least 10-12.5%

Dr Hafiz Md Hasan Babu further demanded that the difference in corporate tax rate of listed and unlisted companies should be at least 10-12.5%. 

Currently the tax rate difference is 7.5% and according to NBR sources, this tax rate may be further reduced conditionally in the next budget.

He said, "A larger tax gap is essential to incentivise good companies to get listed, as without tax breaks, companies are reluctant to list despite the potential for long-term capital from the stock market."

He believes that increasing the tax gap will not reduce revenue from listed companies but will instead increase it.