Even if the corporate tax rate is reduced, there is no scope for legitimacy of undisclosed funds

Senior Reporter: In the proposed budget for the coming 2021-22 financial year, the corporate tax rate of listed companies has been reduced by 2.5 percent. On the other hand, from the next financial year, there is no opportunity to legalize undisclosed money by investing in the capital market. Therefore, the market participants think that there is not much in the capital market in this year’s budget except corporate tax.

In the proposed budget, it has been proposed to reduce the existing tax rate of listed companies from 25 percent to 22.5 percent. The existing tax on unlisted companies has been reduced from 32.5 per cent to 30 per cent. As a result, the tax gap between listed and unlisted companies remains the same at 6.5 percent.

The tax rates of listed banks, insurance and financial institutions remain at 36 percent. Merchant banks will also have to pay 36 percent tax as before. The existing tax rate of 40 percent listed cellphone companies remains unchanged. And for the unlisted cell phone companies, the existing 45 percent tax rate has not changed.

The existing tax rate for mobile financial service (MFS) providers listed in the budget proposal has been increased from 32.5 per cent to 36 per cent. The existing tax rate for unlisted MFS companies has been increased from 32.5 per cent to 40 per cent. This means that MFS companies will get two and a half percent tax exemption if they are listed on the capital market.

On the other hand, there is nothing new for the capital market in this year’s budget as the opportunity to invest undisclosed money in the capital market, source tax on dividend income, tax gap between listed and unlisted companies remains unchanged, said Bangladesh Merchant Bankers Association (BMBA) President. Chhayedur Rahman.

He said there is nothing new for the capital market in the proposed budget other than reducing the corporate tax for listed companies by two and a half per cent. The tax gap between listed and unlisted companies needed to be widened to encourage the inclusion of new companies in the capital market.

The demand to treat the tax deducted at the rate of 10 per cent at source on dividend income as final tax has not been implemented. He also said that the opportunity to invest undisclosed money in the capital market instead of other sectors to increase the flow of liquidity in the capital market would have made the market more dynamic.

In his budget speech, Finance Minister AHM Mustafa Kamal said the government is taking and implementing various reform measures to make the capital market dynamic and vibrant. Some more steps will be taken soon to make the stock exchange a profitable institution and in line with the times. These include the introduction of treasury bond transactions in the capital market, the introduction of transactions in various products of the modern capital market such as sukuk, derivatives and options, the introduction of OTC bulletin boards, the introduction of ETFs, the listing of non-term mutual funds, etc.

Regarding undisclosed investments in the capital market, the finance minister said in a budget speech that 311 individual taxpayers have paid income tax of Tk 43.54 crore till February this year, subject to a number of conditions, including one-year lock-in, to make the capital market dynamic. This has increased the flow of money in the country’s capital market and strengthened the capital market.

In the budget proposal, the tax rate on import of raw materials used in cement production has been reduced from 3 percent to 2 percent. At the same time, it has been proposed to reduce the rate of withholding tax from 3 per cent to 2 per cent against the supply of cement, iron and ferrous products. As a result, the cement and steel companies listed in the capital market will get some benefits.

Sharif Anwar Hossain, president of the DSE Brokers Association, welcomed the proposal to reduce the corporate tax rates of companies listed in the proposed budget. He said the reduction in tax rates of listed companies would increase the profits of the companies and naturally expect investors to get higher dividends than before.

The Bangladesh Securities and Exchange Commission (BSEC), the regulator of the capital market, believes that the budget has been prepared keeping in view the challenges of KVID-19, balancing income and expenditure as well as raising funds from local sources to meet the budget deficit and increasing the scope of social security. Commissioner Prof. Mizanur Rahman.

In response to the budget, he said that the government’s expenditure has increased due to Kavid and it will also increase the budget deficit naturally. On the other hand, the impact of Kavid will reduce the revenue of the government due to the decrease in sales and profits of the companies. Despite this, the government has reduced the tax rate of listed companies by two and a half per cent, which is commendable. To meet the budget deficit, the government has to raise money through banking system and savings certificates. The government has also had to increase the scope of social security assistance to alleviate the effects of the outbreak.

New employment needs to be created by increasing budget incentives in small and medium industries. Special revenue allocation will also be effective for the employment of returning Bangladeshi workers. He welcomed the government’s plan to spend large sums of money at the time of the Corona epidemic as the Bangladesh government’s debt-to-GDP ratio was relatively low compared to developing countries.

Source: Daily StockBangladesh by www.dailystockbangladesh.com.

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