The country’s twine bourses have demanded reconsidering the proposal of fixing tax on capital gains through selling shares as they considered it to be a setback for the capital markets, and would not be functional under the existing system.
Finance Minister AMA Muhith proposed to slap taxes from the gains to be realised by individual investors by selling shares in the capital market.
The proposal said a person will have to pay tax at the rate of 3% of the realised gains if his or her gains exceed Tk10 lakh, but do not exceed Tk20 lakh. So far, the gains by general investors remained tax-free.
“It is not operationally possible to implement,” said Swapan Kumar Bala, managing director of Dhaka Stock Exchange while giving reaction to the proposed budget at the DSE yesterday. He demanded continuing with the existing tax exemption in the coming fiscal year.
He said it is very difficult to collect capital gain tax due to multiple BO (beneficiary owner’s) account in different brokerage houses, linked BO accounts and adjustment between the capital gains and losses.
“If an investor sells shares through linked BO account, the selling brokerage house cannot calculate profit or loss as the broker will not have the information of buying cost of shares,” he explained.
Besides, he said, the existing trading system does not allow the calculation on adjustment between the capital gain and loss. “The adjustment between capital gain and loss is necessary as par income tax rules.”
In case of multiple BO accounts, Bala questioned how the calculation will be done and who will do this. “With all these perspectives, we think the tax provision cannot be implemented right now.”
The DSE, however, appreciated the proposal of offering tax exemption facilities for five years in graduation rate for demutualised stock exchanges and extending the limit of tax-exempted dividend income from Tk10,000 to Tk15,000.
It also thanked the government for the plan in setting up of a Financial Reporting Council and a Clearing Company.
“Financial Reporting Act will help ensure institutional good governance while the clearing company would ease the process of introducing derivatives market and establish settlement fund to attract foreign investors,” said Bala.
On reduction of corporate tax for non-listed firms, he said it cannot be a motivation for listing. “Still the companies will get tax benefits if listed on the exchanges,” he added.
Chittagong Stock Exchange Chairman Abdul Mazid in a separate press conference earlier said capital gain tax might push the market to an uncomfortable position. He said some of the proposed measures are positive and some others negative for the stock market. “But we expect the government will not take any measures that will affect the stock market.”