Capital Market From The Perspective of National Budget of FY 2014-15

Capital Market from the
perspective of National Budget

of FY 2014-15
Budgetary Measures
(a) Differential Tax Treatment
Previously there was a 10% difference in
corporate tax rate between Publicly-traded
companies and non-listed privately owned
companies
 Previously corporate income tax for non-
listed companies was 37.5% and for publicly
traded companies whose stocks are held by
thousands of small investors, was 27.5%
 In the proposed budget of FY 2014-15
corporate tax difference of these two type of
companies reduced to 7.5%
 Now, corporate income tax for non-listed
companies reduced to 35%- a 2.5% decrease
 Due to reduction of tax differences stockholders
of publicly traded companies will be
discouraged while those of non-listed privately
owned companies will be motivated to invest
 Further widening of tax differences in favor of
listed companies was the demand of investors
 Narrow tax difference will not induce non-
listed private companies to go for public
offerings
 When only junk companies are going public in
the recent months by selling IPOs, companies
with strong fundamentals will no more feel
encouraged to go public
 For mobile phone companies the tax difference
is 5%
 No incentive for multi-national companies to go
for public offerings
(b) Treatment of Dividend Income
 In FY 2013-14, tax free dividend income was

Tk. 10000 which is raised upto Tk. 15000 in
the current budget
 The measure is taken with a view to entice
investors to invest more and to enhance
stockholder’s holding period of their shares
(c) Imposition of capital gain tax
 Previously capital gain from the stock
investment was kept tax free for individuals
 The new budget proposed 3% tax at sources on
capital gains of Tk. 10 lakh to 20 lakh.
Furthermore, for gains above Tk. 20 lakh, a 5%
tax will be applicable
 Many experts opine that capital gain tax will
reduce investment and was not required due to
huge loss of majority of investors in 2010 scam
 The NBR expects to receive Tk. 2 billion
from this source but at a cost of investor’s rate
of return
 Many stakeholders consider it as an obstacle
for the growth of capital market
 From the perspective of investors, it is
opposite to financial incentive
(d) Tax Holiday
 New budget proposed tax holiday facility for
Dhaka Stock Exchange and Chittagong Stock
Exchange for the next 5 years until 2019
 The purpose is to help the stock exchanges to
accomplish their ongoing reform process,
which would ensure more accountability and
transparency in stock trading
 Opponents said 5-year tax holiday relief will
not help the stock market in any way. It will
only help the DSE and its owners
 Tax exemption facility is proposed for 5 years
in graduated rate for Demutualised Stock
Exchange with a view to maintain stability in
capital market together with its continual
expansion and strengthening
(e) Setting up of a Financial Reporting Council
and a Clearing Company
 The Financial Reporting Council would help
ensure institutional good governance while the
Clearing Company would ease the process of
introducing derivatives market and establish
settlement fund to attract foreign investors
 Surveillance and transparency is expected to
improve
(f) Raising the ceiling of CSR
Increasing the ceiling of expenditure under the

CSR (Corporate Social Responsibility)
programme from Tk. 80 million to Tk. 120
million is expected to enhance investment in the
long run
(g) Tax exemption on savings instruments
 A ceiling of Tk. 0.5 million incorporated for

exemption in tax-at-source for small savers’
investment in savings instruments to ease their
tax burden
 Previously small savers have to pay tax-at-
source at 5% on the income from savings
certificate
(h) Infrastructural Development
 Due to tax exempt facility for 5 years, stock

exchanges can now utilize the taxable
money for capacity building, infrastructure
development and introduction of new
products to attract strategic investors
(i) Govt. Support to On-going Reform Measures
 According to Finance Minister, the

government would continue its support to on-
going reform measures of the stock exchange
authorities to ensure stability in the country’s
stock market
 At the initiative of SEC with support from
DSE and CSE, demutualization of ownership
and management from trading rights have
almost been completed in these two stock
exchanges under Exchanges Demutualization
Act-2013
Some Policy Suggestions:
 Take necessary measures for improvement of

governance practices in the capital market
 The Ministry of Finance and other concerned
authorities of Bangladesh’s stock market should
take necessary steps to finalize the ‘Financial
Reporting Act’
 There should be a flexible tax rate for
prospective companies declaring handsome
dividends for their for their investors
 Favorable tax rate should be imposed of
listed companies of DSE and CSE
 ‘Strong Form Efficiency’ of market should
be ensured by SEC
 Incentive measures for MNCs to go for
public offerings
 Ensure proper implementation of the process
of demutualizing the stock exchanges for
better functioning of the market

Capital Market From The Perspective of National Budget of FY 2014-15

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Capital Market From The Perspective of National Budget of FY 2014-15

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Capital Market from the

perspective of National Budget

 In FY 2013-14, tax free dividend income was

Increasing the ceiling of expenditure under the

 A ceiling of Tk. 0.5 million incorporated for

 Due to tax exempt facility for 5 years, stock

 According to Finance Minister, the

 Take necessary measures for improvement of

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