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Tax rebate on investment in private mutual funds: no tax on bond sales : New benefits proposed to revamp capital market

Thursday, June 6, 2013
The government has proposed a number of new benefits, including a tax rebate on investment in private mutual funds and tax deduction at source on share premium to help revamp the country's stock markets.

"The present government is firmly committed to maintain the stability of the capital market along with its continual expansion and solidification," said Finance Minister AMA Muhith on Thursday in his budget speech.

As per the proposed budget announced for the fiscal year (FY) 2013-14, a company will enjoy a tax exemption on its share premium fixed over face during the flotation of shares through the initial public offering (IPO).

Presently, a company has to pay three per cent tax on the share premium fixed by the securities regulator while offloading the shares into the stock market.

"This step will, I believe, motivate the new companies to be enlisted in the capital market," Mr Muhith said.
Proposals for Capital Market
Particulars
Existing
Proposed
Tax deductible at source on the premium over Face Value of shares
3%
NIL
Tax deductible at source on bond sale
0.05%
NIL
Tax rebate on the investment in private mutual funds
NIL
15%
Tax exempted dividend income threshold
5,000/-
10,000/-

As per another government offer, it is not required to pay tax at source on bond sales, although under the existing provision one has to pay 0.05 per cent tax on sales.

The government has offered this facility with a view to making the country's bond market more attractive and vibrant.

The more lucrative offer for the private mutual funds, which are presently in a dire state as many of their market prices have recently gone down below their net asset value (NAV), is that 15 per cent tax rebate will be applicable on the investment made in private mutual funds.

The move has been taken considering a condition made by the Asian Development Bank (ADB) which said that a level playing field should be created for the mutual funds managed by both the state-run and private organisations.

Presently, tax rebate is applicable only for the investment made in the mutual funds managed by the Investment Corporation of Bangladesh (ICB).

Moin Al Kashem, managing director of the Prime Finance Asset Management Company, said that presently the investors would be benefited by purchasing units of private mutual funds amid a level playing field created by the government.

"We hope the investors will be interested for long-term investment in mutual funds," Mr. Kashem said. 

The government has also raised the tax- exempted dividend income threshold up to Tk 10,000 from the existing ceiling fixed at Tk 5,000.

According to another proposal, investment ceiling for an individual has been raised up to 30 per cent of total income fixed at Tk 15 million.

In that case, the individual will enjoy a 15 per cent tax rebate on his income invested in stock market.

Presently, a 10 per cent tax rebate is applicable on individual income by investing 20 per cent of total income fixed at Tk 10 million.

While, speaking on tax exemption on the income of the bourses, the Finance Minister said the government has a plan to consider the bourses' proposal when the proposed demutualisation becomes effective.

Both Dhaka and Chittagong Stock Exchange sought the facility, among others, in their budget proposals submitted to the government. 


"Our government wants to build the capital market as a dynamic source of capital. This prompted us to pay due attention to the development of the capital market from the very beginning," the Finance Minister said.
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