Chittagong Stock Exchange (CSE) and Bangladesh Merchant Bankers Association (BMBA) have submitted several proposals for consideration in the Budget for the upcoming 2023-27 financial year. Both have proposed lowering corporate tax rates to 20 percent for listed companies and cutting tax rates on securities transactions at a rate of 9 percent.
CSE's proposal: In the coming budget, CSE has proposed to provide special benefits for the two stock exchanges in the country by reducing the existing tax rate from 5 to 5 percent. At present, corporate tax is applicable at 25 percent for listed companies and 5 percent for unlisted companies, except for banks, insurance and other financial institutions, tobacco products companies and mobile phone operators. The CSE has proposed to set the rate at 25 percent for listed companies.
According to the Finance Act of 2021, if a unlisted company transfers at least 20 percent of the paid up capital through initial public offering (IPO), the rate of return on the applicable income in the year of transfer is 5 percent. The CSE has proposed to extend the facility conditionally up to three years.
In this case, they propose to set tax at the rate of 5 percent in the first year of enrollment and 4 percent in the second and third year. The CSE has asked companies to provide tax benefits to those who could maintain the 'A' category over the years. To encourage SME companies to enroll in the capital markets, CSE has asked these companies to be tax-free for the first three years and to set tax rates at a 5 percent concession rate in the following years.
In addition, CSE has proposed a tax concession of 5 percent for companies paying high dividends (more than 20 percent), but for companies paying dividends of less than 5 percent and companies paying dividends of 5 percent or more.
At present, the income tax is deducted at the rate of decimal zero percent on bond transactions. CSE says that in order to create a strong and separate bond market, bond transactions need to be exempted from this provision. Currently, the listed companies have to collect 8 percent tax on export incentives. The CSE proposed lowering the rate to 5.7 percent.
According to Section 1 of the Income-tax Ordinance of the Year 1, the stock exchange member is currently taxed at a rate of 0.5 percent on the security transaction. According to the CSE, the deductible tax can be deducted from the members of the stock exchange by fixing the rate of deduction of 10 percent as before.
Currently members of the stock exchange can forward their business losses up to the sixth tax year. The CSE has proposed to extend the deadline to eight years. The exchange is expected to reduce the tax payable on institutional investor capital gains from 5 to 5.7 percent.
The CSE has proposed raising the tax exemption up to Tk 1 lakh available from the listed companies and mutual funds and unit funds, in order to increase the tax free dividend limit for individuals. At present, income of up to Tk 5,000 and Tk 25,000 respectively is tax free. In the case of a limited company, the CSE has said that the tax on the dividend earned from the share of another listed company will be reduced from 25 to 5 percent.
In this case, the CSE has said that it will impose conditions for holding the shares for at least three months before the record date. And the CSE has proposed to reduce tax deduction on dividends earned by foreign investors from listed companies by 5 percent in the company and 20 percent in other cases.
The CSE has proposed raising the maximum tax-free income limit for individual taxpayers from two and a half lakhs to four lakhs. According to the exchange, the rate at which the company concerned deducts its income tax at the rate of 5% while paying cash dividend to individual investors can be considered as final taxation for the investors.
Currently, the maximum limit for deductible investments for individual taxpayers is 20 percent of their total taxable income, which is not more than Tk 1 million. The CSE has proposed raising the limit to 5 percent. The exchange has proposed raising the tax-free limit of the income tax allowances of individual taxpayers to 5 percent or Tk 5,000 per month. In addition, CSE has said that utility bills for taxpayers of this category should be considered as allowable expenses like medical and home rent.
According to the existing provisions, the total amount of waiver benefit is taxable up to Tk. 1 lakh if the interest on the margin loan and loan interest taken by an individual investor in the capital market is invested in a share, debenture, mutual fund or any other securities.
For extra money, additional taxable provision is applicable. Like the CSE Bank and Financial Institutions, any margin exempted by the stakeholder is proposed to be excluded from the loan and its interest tax deductions, and the taxpayer of the individual and company class is open to the public.
In addition, the CSE has proposed to raise funds from the market to finance the various mega projects of the government (such as Padma Bridge, Elevated Expressway, Metrorail, etc.).
BMBA Proposal: In the upcoming budget, BMBA recommends lowering the corporate tax deduction from 20 to 20 percent. In addition, they have proposed to reduce the rate of VAT by 5 percent.
At present, the tax is deducted at the rate of 0.5 percent at each transaction of the capital market. Earlier, the rate was decimal 0 percent. The BMBA has recommended a tax cut on the transaction at a previous rate.
At present, advance tax is deducted at the rate of 5 to 5 percent when paying dividends. Subsequently, at the time of personal income tax return of the beneficiary of the dividend, the tax is to be taxed at the applicable rate. In this case, BMBA recommends consideration of advance tax as final tax.
At present, merchant banks are required to pay tax at the rate of 5.9 percent, brokerage houses 3 percent and wealth management companies at 5 percent. The BMBA says there should be equality in the taxation of three market-mediated companies. The organization recommends 20 percent tax deduction in the case of Merchant Bank.
In addition to the coronavirus-related situation, the BMBA has proposed to add to the economy mainstream by investing out-of-the-way / undisclosed money in terms of investment for at least three years and capitalizing on tax payments at a rate of 5%. The organization believes that it can improve the lives of the people and the economy everywhere.