Rezaul Karim
The government may withdraw the upfront tax at source on profit earned from its different securities from the next fiscal year (FY), 2015-16, to help develop the secondary market for the same, officials said.
The Bangladesh Bank (BB) will prepare a concept paper in this connection, which will be forwarded to Finance Minister Abul Maal Abdul Muhith, they also said.
The decision was taken at the last meeting of the Cash and Debt Management Committee (CDMC) under the Ministry of Finance (MoF). Mahbub Ahmed, senior secretary of the Finance Division, presided over the meeting.
The government earlier introduced a provision to deduct 5.0 per cent upfront tax on income from all kinds of government securities from this FY, 2014-15, by amending section (51) of the Income Tax Ordinance, 1984.
According to section (51), "Deduction at source from interest on securities: In the case of the security of the Government, or security approved by the Government, unless the Government otherwise directs, the person responsible for issuing any security, income of which is classifiable under the head 'Interest on securities', shall collect income tax at the rate of five per cent (5 per cent) upfront on interest or profit, receivable on maturity, from the purchaser of the securities."
A high official of BB said the first buyer of any security has to give upfront tax though he gets profit or interest after a long period. When the second buyer purchases the security, he need not pay tax. As a result, the present system is very illogical in the context of the country.
"The system distorts prices of the securities in the secondary market. It also hampers development of the security market. The tax deduction on securities creates a negative impact on the country's overall economy. For this, the government wants to improve the secondary market by withdrawing the existing upfront tax."
"It is possible to earn a large amount of revenue, if the secondary market of securities can be improved through withdrawing upfront tax. It is also against the law to deduct tax at one time for the long-term securities with 2, 5, 10, 15 or 20 years maturity," he added.
"In the last meeting of CDMC a decision has been taken to abolish the upfront tax on different government securities," Bishnu Pada Saha, general manager of BB's Debt Management Department, told the FE at his office Tuesday. But he declined to disclose the details of it.
At present, resident Bangladeshi individuals and institutions, including banks, non-bank financial institutions (NBFIs) and insurance companies can purchase or invest in the government treasury bills (T-Bills) with 91 days, 182 days and 364 days maturity.
Besides, resident individuals and institutions, including banks, NBFIs, insurance companies, corporate bodies, and authorities responsible for management of provident funds and pension funds can purchase the Bangladesh Government Treasury Bonds (BGTBs) with 2, 5, 10, 15 and 20 years maturity.
Investors can purchase T-Bills and BGTBs from the primary dealers (PDs) and other banks and financial institutions in the secondary market. Buying and selling of T-Bills and BGTBs can be conducted over the counter (OTC).
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