In response to the 2024-25 national budget’s imposition of a capital gains tax on stock market investments, the DSE Brokers Association of Bangladesh (DBA) has made a fervent plea to reconsider.
Considering the current market conditions and the financial strain on investors, DBA has outlined seven crucial recommendations, calling for the withdrawal of the proposed capital gains tax.
At a post-budget press conference held at the DSE Brokers Club on June 11, DBA President Saiful Islam articulated the organization’s stance and suggestions.
The DBA’s recommendations on the proposed budget are as follows:
- Exempting Capital Gains from Taxation: To stimulate investment and support market growth.
- Rationalizing the Tax Rate for Brokerages: Simplifying and reducing the tax burden on brokerages to enhance their financial stability.
- Clarifying Existing Laws on Capital Losses: Providing clear interpretations and extending the capital loss carry-forward period to seven years.
- Roadmap for State-Owned Enterprise Listings: Encouraging the listing of government enterprises to broaden market depth.
- Adjusting Corporate Tax Rates for Non-Listed Companies: Ensuring corporate tax rates do not exceed the highest personal tax rates.
- Allowing New BO IDs to Operate Tax-Free for Three Years: Promoting new account openings and market participation.
- Making Margin Losses Tax-Deductible: Allowing investors to deduct margin losses from taxable income to ease financial pressure.
During the press conference, DBA highlighted that the proposed budget imposes a tiered tax on capital gains exceeding 50 lakh taka. Additionally, investments held for over five years would be subject to a 15% tax on the gains. Given the prolonged market downturn and financial struggles of investors, DBA strongly recommends the removal of this tax proposal.
Currently, brokerages face a dual-layer tax system. They pay 0.05% on securities transactions and a corporate income tax, with the higher amount being considered the final tax. This dual taxation, especially during market slumps, can result in tax rates exceeding 40%, severely impacting brokers. Brokerages play a vital role in attracting investors and facilitating crucial securities transactions. Their financial health is essential for market development. To maintain brokerage viability, DBA suggests reducing the transaction tax to 0.025% and treating corporate income tax as the final tax for brokerages.
Regarding capital loss legislation, DBA notes that while the budget proposes taxing capital gains, the current law allows for capital losses to be carried forward or adjusted for up to six years. DBA recommends extending this period to seven years and providing clear and effective interpretations of the existing laws to support investors better.
In light of the proposed capital gains tax in the 2024-25 national budget, the DSE Brokers Association of Bangladesh (DBA) has highlighted the dire financial state of investors due to prolonged market downturns. DBA asserts that many investors are grappling with significant financial losses. By allowing capital loss carry-forward or adjustment alongside the proposed tax on gains exceeding 50 lakh taka, investors can better preserve their capital, benefitting the market and all stakeholders. This approach would strengthen investors financially, thereby enriching the market and increasing government revenue.
Regarding the listing of state-owned enterprises (SOEs), DBA emphasizes that there has been minimal progress over the past decade. They call for a clear roadmap to encourage SOE listings, aligning with Prime Minister’s directives. Such a roadmap would foster competitive, high-quality businesses, boosting market liquidity and expansion, ultimately enhancing government revenue through expanded business operations.
The proposed budget sets the highest individual tax rate at 30%. However, corporate tax rates for non-listed companies fall below this threshold, with only a 2.5% difference between listed and non-listed entities. Considering the contributions of listed companies to social activities and market promotion, DBA suggests setting the corporate tax rate for non-listed entities above the highest individual tax rate and reducing the tax rate for listed companies, provided they regularly publish comprehensive financial reports.
DBA also highlights the need to increase market participation by creating new investors. Currently, only 1% of the population has active BO accounts, compared to 28% and 67% for banking and mobile financial services (MFS), respectively. Encouraging the transition of these account holders to stock market investments could generate significant capital gains, interest, and dividend income, thereby increasing government tax revenue. To achieve this, DBA proposes allowing all new BO accounts with investment limits up to 10 lakh taka to operate tax-free for three years. Additionally, BO accounts held by students, underprivileged individuals, disabled persons, and senior citizens should enjoy a zero tax rate on profits.
DBA identifies margin losses as a significant barrier to market development, causing many investment accounts to become inactive and exacerbating liquidity issues in recent years. To address this, DBA recommends that the National Board of Revenue (NBR) allows margin losses to be tax-deductible, providing an incentive for lenders and helping to financially rehabilitate these investments, thus increasing market participation.