Muhith plans corporate tax cut before polls

The government plans to reduce corporate tax in the next fiscal year, said Finance Minister AMA Muhith yesterday.

“It is true that our corporate tax is not that helpful for the development of our capital market,” he told a seminar on “Raising Awareness on Various Aspects of the Capital Market”.

The Bangladesh Association of Publicly Listed Companies (BAPLC) organised the seminar at Bangabandhu International Conference Centre in the capital.

“We have a plan to bring some real reforms in corporate tax structure,” said Muhith.

He said the country's growth was led by public sector investment and the change in corporate tax structure would increase the private sector's contribution through investments.

Private sector investment has remained stuck at around 20 percent of the GDP for the last couple of years.

Muhith said reforming multiple corporate taxes would enable them to raise their contribution to GDP growth.

Currently, banks, non-bank financial institutions and insurance companies pay 42 percent corporate tax whereas merchant banks pay 37.5 percent.

Though there is a provision stating that listed companies would get 10 percent tax exemption, financial institutions and insurance companies are excluded from this facility. 

Muhammed Aziz Khan, president of the BAPLC, blamed high corporate tax for stagnant investment from the private sector.

He said Bangladesh has one of the most onerous tax regimes, with corporate tax of up to 42 percent on financial institutions.

Therefore retained earnings become less, for which companies are unable to invest, he said, adding that the high tax prompted business firms to avoid paying tax in different ways.

“We are providing up to 76 percent tax through corporate, dividend and personal file,” said Ahmad Rashid Lali, president of the DSE Brokers Association of Bangladesh.

He said though there was a provision of 10 percent exemption for listed companies, financial institutions did not enjoy it.

He urged the government to enhance the tax exemption limit to 20 percent for listed companies as an incentive to draw companies into the capital market.

The capital market is suffering for a lack of coordination among regulators and ego is working behind it, he said.

For instance, Lali said, the insurance regulator recently cancelled the licence of a listed insurer but did not discuss it with the stockmarket regulator. As a result, the company's shareholders suffered a lot.

He said the Bangladesh Bank, another regulator of bank companies, recently penalised some banks for overexposure.

Banks can invest 25 percent of their capital according to the Banking Company Act. But the central bank considers all kinds of exposures, including investment in subsidiaries, as capital market exposure.

Moreover, the investment is calculated on the market price instead of the buying price.

Lali said there was an anomaly in the way the authority was calculating banks' exposure.

Arif Khan, managing director of IDLC Finance Ltd, emphasised developing the bond market to make the stockmarket vibrant.

A former member of the Bangladesh Securities and Exchange Commission, Khan said the corporate bond market would grow after the government develops the bond market.

High interest rate on savings instruments is the major obstacle for building the bond market.

Khan presented a keynote titled “Various Aspects of The Capital Market” at the seminar where Farzana Chowdhury, managing director of Green Delta Insurance Company, moderated the session.

The keynote paper shows that the capital market generated 19.5 percent returns alone in 2017.

There is more space for the capital market to grow as the size of the market is only 20.2 percent of the GDP, whereas it is 28.4 percent in Pakistan and 99.5 percent in India, according to the presentation.

Khan emphasised increasing institutional participation to make the market strong.

Addressing the governance issue, Khan said directors of the companies were mainly involved in insider trading.

He criticised the independent directors' role, saying they were not aware of their responsibilities. Independent directors should be interviewed before approving their appointment, he added.

M Khairul Hossain, chairman of the BSEC, Anis A Khan, vice-president of the BAPLC, KAM Majedur Rahman, managing director of the Dhaka Stock Exchange, and Shaifur Rahman Mazumder, managing director of the Chittagong Stock Exchange, also spoke.