Set ceiling for taxfree dividend income at Tk 1 lakh

The Dhaka Stock Exchange yesterday urged the government to increase the ceiling for tax free dividend income to Tk 1 lakh in a bid to attract more investors to the market.

At present, the ceiling for tax-free dividend income is Tk 25,000.

“If the proposal is taken into consideration, it will help reduce the liquidity crisis of the capital market,” the premier bourse said. It was one of the proposals the bourse placed at a pre-budget meeting with the National Board of Revenue yesterday.

However, the DSE placed almost the same proposals last year.

Small investors will be benefited if the ceiling is set at Tk 1 lakh as they have suffered a lot due to the market turmoil previously, especially during the debacle in 2011, the DSE said.

The bourse also urged the government to continue its full tax exemption facility for the stock exchange for another three years, including this fiscal year.

The government provided full-tax exemption for the first two years of demutualisation of the exchange and it is supposed to pay taxes at graduated rates from this fiscal year.

Before the demutualisation, the stock exchange was a non-profit cooperative owned by the exchange members and was not subject to corporate taxes.

But with demutualisation, which is a way of separating management from ownership, the bourse was converted into a profit-oriented company owned by shareholders in 2013. As a result, it is subject to 35 percent corporate tax.

Under a graduated rate system, the bourse will get full tax exemption in the first two years of demutualisation, 60 percent tax exemption in the third year, 40 percent in the fourth year and 20 percent in the fifth year; it will have to pay full taxes after that.

“The DSE is now incurring operating losses. If the tax remains on, the DSE will have to increase transaction fees that will ultimately have to be paid by retail investors,” the bourse said in the proposal.

The DSE also demanded reducing the tax at source on share transactions to 0.015 percent from existing 0.05 percent, considering the market's current volatile situation.

The reduction will bring down the cost of transactions, which will ultimately enhance trade volumes and related taxes.

The stock exchanges, on behalf of the government, collect the tax on the value of shares, mutual fund units or other securities transacted, and deposit the revenue to the state coffer.

The DSE also requested the NBR to increase the tax gap between listed and non-listed firms to 20 percentage points, instead of existing 10 percentage points, to encourage the listing of new companies.