The two stock exchanges of the country will be exempted of tax on their income for the current fiscal year so the bourses can go ahead smoothly during the post-demutualisation time, according to NBR officials.
At a meeting recently, the National Board of Revenue came up with the decision in response to the request made by the stock exchanges authorities to finance minister.
Dhaka Stock Exchange and Chittagong Stock Exchange recently sent separate letters to Finance Minister AMA Muhith seeking complete tax exemption on income during the fiscal year 2015-16.
In its letter sent, the CSE argued that the exchange needed the facility to enhance its financial and operational capacity, and that “would be in greater interest of the stock market.”
The CSE feared that its net asset value would decline and the share prices might drop if the tax was not exempted, and this could lead to difficulties for the exchange in getting fair prices from strategic shareholders.
As per Demutualisation Act 2013, the bourse will have to sell 25% of its total issued shares to strategic shareholders by 2016.
“It will be very difficult for the bourse to sell its shares at expected high prices to the strategic investors if the NAV drops,” reads the letter.
The DSE, in its letter, sought the tax benefit for continuation of its ongoing reform measures under the demutualisation scheme.
“The tax exemption will help the DSE attract strategic foreign investors for selling its shares in line with the conditions of demutualisation,” claimed the DSE letter signed by Managing Director Swapan Kumar Bala.
Both the DSE and CSE became demutualised stock exchanges in November 2013 following enactment of the Demutualisation Act.
After demutualisation, both the bourses turned into profit-oriented entities.
In the FY2014-15 budget, the government offered tax exemption for 5 years to the demutualised stock exchanges in gradually reducing rate “to maintain stability in the country’s capital market.”
As per the latest NBR decision, the DSE and CSE will enjoy relaxation in income tax payment until FY2019-20. The bourses will get maximum exemption of 80% in FY2016-17, while the ceiling will be reduced to 60% in the FY2017-18, 40% in FY2018-19, and 20% in FY2019-20. From FY2020-21, the exchanges will have to pay full income tax like other private sector bodies.