The Chittagong Stock Exchange has urged the government to keep capital gains from long-term investments tax free in the next fiscal year, a move that will encourage institutional investors to park funds in the markets.
The port city bourse proposed a tax waiver on capital gains made by an institution whose investment in stocks exceeds three years.
The provision will attract an inflow of investments to the secondary market, which has been facing a severe liquidity crisis for a long time amid high volatility, the bourse said in a budget proposal submitted to the National Board of Revenue last week.
The CSE proposed a 7.5 percent capital gain tax for holding shares for 1-2 years and 5 percent for 2-3 years.
Presently, the companies and firms that are considered major institutional investors pay 10 percent tax on capital gains.
“A long-term tax policy will inspire institutions to plan for future investments, helping to stabilise the stockmarket,” CSE said.
Price indices on the premier bourse, Dhaka Stock Exchange, came down to a historic 40-month low at 3,610 points last week, with continuation of a downtrend since the price debacle early 2011.
The CSE urged the government to cut tax at source on share transactions by 70 percent to 0.015 percent, from the existing 0.05 percent.
The bourse also recommended revising the corporate tax in three slabs for small and medium firms -- zero percent for companies that will make profit worth up to Tk 1 lakh, 17.5 percent for up to Tk 5 lakh and 37.5 percent for above Tk 5 lakh.
The country's second bourse requested the government increase the ceiling of tax free income from stockmarket investment from the existing Tk 5,000 to Tk 50,000.
“The companies pay taxes on their profit. So, the tax on dividend payment creates double taxation. To avoid double taxation, the tax on dividends can be withdrawn,” the CSE proposed.
As demutualisation of the stock exchanges is going on, the bourses should get tax exemption for up to seven years from completion of the demutualisation, the CSE said.
The port city bourse also urged the government to take budgetary steps to remove the tax exemption on share premiums, continue tax rebate for stockmarket investment and keep scope for investment of untaxed money in the stockmarket.