Tax rebate on investment in secondary stock may go

The government is contemplating removing tax rebates on investments made in the secondary stock market, while at the same time enhancing benefits for savers in banks – a measure that could increase government revenues but may have the unintended consequence of diverting funds from the capital markets to the banking system.

At present, taxpayers are eligible for a 15% rebate on their investments up to a maximum of 20% of their taxable income in the stock market, deposit pension schemes (DPS), life insurance, etc.

Finance ministry officials have indicated that the government is planning to propose the withdrawal of rebates on investments in the secondary market in the budget for the upcoming fiscal 2023-24. The tax benefits would be limited only to investments made in initial public offerings (IPOs).

The finance ministry wants to promote investments in primary shares because it is difficult for tax officials to calculate and monitor investments in secondary shares, officials said.

These proposals were discussed at a recent meeting chaired by Finance Minister AHM Mustafa Kamal and are set to be presented to Prime Minister Sheikh Hasina for approval on 14 May.

However, economists and experts have voiced their disagreement with these proposals, stating that they would discourage investments in the capital market. 

Infographic: TBS

They believe that this could negatively affect the overall growth and development of the capital market.

Furthermore, they pointed out that a significant number of investments are made in the capital market in June every year, at the closing end of the financial year, and that this proposal could dry up this new investment flow.

Sayadur Rahman, president of the Bangladesh Merchant Bankers Association, has expressed concerns that such a move by the government could affect the investment flow in the country. 

He also pointed out that as the number of IPOs every year is very low, taxpayers will not be able to invest their eligible amount in an IPO.

While speaking to The Business Standard, Professor Abu Ahmed, an eminent economist and stock market analyst, strongly criticised the government's proposal, stating that it is unfair and unreasonable. 

He questioned why the National Board of Revenue (NBR) has suddenly decided to withdraw tax rebates on investments in the secondary market, without any clear explanation. 

"If this proposal is approved, people will move to invest in savings certificates from the capital market. And, the government will have to pay more interest on savings certificates, which is not also acceptable."

Professor Abu Ahmed also mentioned that about two decades ago, when this tax rebate facility was introduced by the then-NBR chairman Abdul-Muyeed Chowdhury, its aim was to reward taxpayers who are taking risks to invest in the capital market, which is a risky one. 

He questioned why policymakers did not consider this before proposing such a drastic measure. 

He called on the Bangladesh Securities and Exchange Commission (BSEC) and Dhaka Stock Exchange (DSE) to take necessary steps to prevent the implementation of this proposal.

Presently, investments are allowed in some sectors including savings certificates, life insurance premiums; contributions to the provident fund of government servants; employer and officer contributions to recognized provident funds; contributions to welfare fund and group insurance fund; and contributions paid to a superannuation fund, investments of up to Tk60,000 per year in bank and nonbank financial institutions' Deposit Pension Scheme (DPS); investment in the capital market in primary or secondary shares, stocks, mutual funds, or debentures of companies listed on stock exchanges; and investing in government-approved treasury bonds.

DPS investment ceiling to be wider

The ministry officials also mentioned that in the upcoming budget, the investment limit in DPS will be increased. 

Currently, tax concessions up to Tk60,000 per year (Tk5,000 per month) are available for DPS. It can be increased from Tk72,000 to Tk75,000.

Widening the DPS investment ceiling is a good initiative, said Snehasish Barua, a founding partner of chartered accountant firm Snehasish, Mahmud and Co, adding that it will help to increase liquidity in banking and financial institutes.

He observed that nowadays depositing Tk10,000 monthly is not a big issue for any taxpayer, considering that we have proposed to increase the DPS limit up to Tk1,20,000.

Corporate may get relief from submitting 29 documents

Sources also mentioned that corporate companies have to maintain 29 types of documents reporting for their tax return submission, the upcoming budget will reduce it to 12 reporting documents.

Snehasish Barua said it will make the tax return process easier for corporate companies.