The government has taken steps to develop a strong bond market in the country to provide long-term financing.
The government has proposed tax at the rate of 10 per cent of the commission of bond transactions instead of existing provision of tax imposed on the whole value.
Besides, the government has proposed to realise tax from the income incurred transactions of bond and sukuk instead of existing upfront tax at source.
"Flourishing of the bond market in the country will open up new scopes and opportunities for financing mega projects in public and private sectors," Finance Minister AHM Mustafa Kamal said while unveiling the national budget for the FY 2020-21 on Thursday.
It is expected that this will reduce the cost of financing in public and private sectors.
"The problem of balance sheet mismatch in the financial institutions arising out of short-term liability against long-term assets will be mitigated by this".
To make the bond market attractive to the investors by abolishing the existing provision of deduction of source tax upfront on interest and discount on bonds, the finance minister has proposed to introduce the provision of TDS (tax deducted at source) at the time of payment of interest and discount on bonds to make the bond market attractive to the investors.
In addition, instead of the present provision of deducting withholding tax on the value of bond transactions, the minister proposed introduction of withholding tax deduction on the commission fixed by the Bangladesh Securities and Exchange Commission (BSEC), the regulatory body for the capital market.
"These measures will increase transactions of bonds in the capital market and facilitate the flourishing of a strong bond market in the country," he hoped.
The government has proposed 5.0 per cent tax on the income that will come from any kind of bonds.
"Any person responsible for issuing a security of the government, or security approved by the government or the securities regulator, income of which is classifiable under the head 'interest on securities, shall collect income-tax at the rate of 5.0 per cent on discount, interest or profit on securities at the time of making payment or credit, whichever is earlier," according to finance bill-2020.
The government has also proposed 10 per cent tax on the commission to be realised from the transactions of bonds.
Mr Kamal said in his budget speech that the government has taken six short and long-term measures to rejuvenate the stock market and bring dynamism into the sector.
These include- enhancing participation of banks and non-bank financial institutions in the capital market, ensuring easy credit facility for merchant bankers and institutional investors, boosting investment capacity of state-owned Investment Corporation of Bangladesh, taking steps to bring confidence in the stock market, taking steps to increase institutional investment, and listing multinational companies and state-owned enterprises to enhance quality of IPOs in the stock market.
He noted that the state-owned banks: Sonali, Janata, Agrani and Rupali, have already decided to increase their investment in the capital market.
To maintain liquidity in the capital market by increasing investment from private banks, Bangladesh Bank now allows scheduled banks to invest Tk 2.0 billion in the stock market taking financial support from the central bank.
Banks will be allowed to show the fund as special investment, which will not fall within the purview of the banks' stock market exposure of up to 25 per cent of their capital.
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