The government has backtracked on its plan to slap tax on capital gains of individual stock investors in the face of opposition from market stakeholders.
It also allowed the continuation of a 10 percent tax rebate for listed companies that pay 30 percent dividend. Currently, companies that give 20 percent dividend get the rebate. The government also raised the limit for tax-free dividend income to Tk 20,000 from Tk 10,000 now.
Finance Minister AMA Muhith yesterday unveiled the changes to the Finance Bill 2014, citing that the Prime Minister made the suggestions to encourage individual investments and prop up the sluggish market. The bill also got passage in parliament yesterday.
Some analysts, however, said the continuation of the tax-exemption facility for large capital gains of individual investors is unjust as people, who do not have incomes from stocks, will have to pay tax if their earnings exceed Tk 220,000 a year.
In the proposed budget for the next fiscal year, the government had slapped a 3 percent tax on capital gains upwards of Tk 10 lakh. For gains above Tk 20 lakh, a 5 percent tax had been proposed. The proposals were made to collect some revenue from a good number of 29.85 lakh beneficiary owner's accounts who get away without paying any tax despite earning millions.
But the proposals could not get through due to opposition from stockmarket stakeholders who said the market, which has been on a downtrend for long, would suffer for imposition of the tax on capital gains that have been tax-free to date.
"One can see some rationales immediately after the collapse of the market. But any support cannot be justified three to four years after the correction. By now, the market should stand on its own feet," said Ahsan H Mansur, executive director of Policy Research Institute.
Since the market debacle in 2010, the government offered a number of stimulus packages, but vibrancy in the market is yet to return.
DSEX, the benchmark index of Dhaka Stock Exchange, lost 166.42 points or 3.54 percent in one month till June 5. On Thursday, the market closed at 4,409.92 points, adding 0.13 percent, compared to the previous day.
Mansur said tax could have been imposed on those who will gain from the market. "Why will we give benefit to 100 or 200 people who had made millions during the market collapse?" The tax policies should be equal for all sectors, he said.
Higher tax has been imposed on those who are already in the tax net, Mansur said. "But we are not going after those who are out of the tax net. It is unjust as well as inefficient."
Khondaker Golam Moazzem, additional research director at Centre for Policy Dialogue, said: "It appears the government has dropped its plan under pressure from the stockmarket stakeholders."
The recent trends and investments in the stockmarket suggest that imposition of the tax on capital gains would not leave any negative impact on the market, he said.
"If capital gains from the stockmarket are made tax-free, similar benefits should be given to other areas," he said, citing tax on interest incomes from savings certificates.
Moazzem also said a tax-benefit would not give a boost to the capital market. "It is important to remove the structural weaknesses of the market," he said.
However, Yawer Sayeed, managing director of AIMS of Bangladesh, an asset management company, said the timing of imposing the tax was improper as the market is in a bearish mood now.
"It would have been a futile exercise as the government would not get so much revenue by imposing the capital gain tax. Rather, it would put psychological impact on the investors," he said.