Listed cos demand tax cut for sponsors, institutions

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FE Report
The proposed capital gains taxes on institutions and sponsor directors and premium value of shares must be cut or lifted to ensure accelerated growth of the country's capital market, listed firms said Saturday.
The Bangladesh Association of Publicly Listed Companies (BAPLC) said the taxes slapped in the budget could expand the country's revenue base, but eventually threaten the growth of the bourses.
"We believe that any major taxes need to be introduced carefully and with due consideration so that they do not damage the growth potential of what is still a relatively nascent financial market," BAPLC president Salman F Rahman said.
Salman, also the vice-chairman of the Beximco Group, said while turnover and market capitalisation of Dhaka and Chittagong bourses have grown sharply, much of the expansion came in the last 12 months.
"So it may be premature to believe the trend is robust enough to withstand the kind of aggressive taxation proposed in the budget," he said.
For the fiscal year of 2010-2011, the government has proposed to impose tax at the rate of 10 per cent on income of an institution it earns from trading of shares of listed companies in any stock exchange.
The finance minister also proposed to impose tax at the rate of five per cent on income of sponsor shareholders or directors of a company listed with any stock exchange and three per cent on the premium value of shares of companies being sold at a premium value.
Salman said the government can watch the market development and trend for one more year before going for such aggressive taxation on capital market.
His comments came at a post-budget reaction meeting jointly organised by BAPLC, Dhaka Stock Exchange (DSE) and Bangladesh Merchant Bankers Association at a city hotel.
DSE president Shakil Rizvi, Merchant Bankers Association president Arif Khan and Chittagong Stock Exchange (CSE) vice president Al Maruf Khan also spoke.
The BAPLC leader said one of the key problems the stock market is facing today is the imbalance between excess demand in the capital market and insufficient supply of high quality stocks.
He said the market capitalisation of the Dhaka bourse is less than 40 per cent of the country's gross domestic product, which is well below the most other regional economies including India.
Salman said taxing sponsor shareholder and the premium value of shares would seriously discourage privately held companies from coming to the market.
"The taxes came at a time when we need further growth of the market, driven by listing of more and more companies," he told reporters.
He said the government should reduce tax on income of a company earned from trading of shares of listed companies from 10 per cent to five per cent.
He also demanded lifting of the tax on sales of premium value of shares, saying "the three per cent tax basically amounts to taxing the equity of the company which is against the basic principles of taxation."
The BAPLC urged the government to lift the proposed five per cent tax on the income of sponsor directors.
"Given that there is a three-year lock-in for sponsors in initial public offerings, we believe they are already refrained from speculative sales," Salman said.
Salman said tax on issuers and sponsors might discourage sponsor shareholders and directors to bring more issues to the capital market and supply of securities might decline.
"In his budget speech, the finance minister has categorically said that no taxes will be imposed on the income of individual shareholders from share trading. Shareholders of any company are also individual stockholders. Then, why has they have been singled out?" he questioned.
On tax on institutional investors, he said it may discourage institutional investors to continue with their revolving investment. "As a result, market may be volatile in absence of institutional investors."
The BAPLC said the annual levy on beneficiary owners' (BO) accounts charged by the National Board of Revenue could be set at Tk 500, which -- with 2.5 million BO accounts outstanding -- would generate Tk 1.25bn in revenues this fiscal year.
"The broader goal of broadening the tax net to capital gains on share sales can be considered in a future budget, but not this time," Salman said.
Shakil Rizvi said the tax at source on commissions received by stockbrokers to 0.1 per cent from 0.025 per cent would increase transaction cost for the investors by at least 300 per cent.
"Share transactions could decline and new stockbrokers might not be interested to come into the business," he said proposing the government impose 0.035 per cent as tax at source.