The activities of securities market will be hampered if the proposed 5.0 per cent upfront tax on interest on the government securities is to be implemented, officials and bankers said.
The government has proposed to impose 5.0 per cent upfront tax on interest on its securities, both treasury bills and treasury bonds, for the fiscal year (FY) 2014-15.
In case of the security of the government, or security approved by the government, unless the government otherwise directs, the person responsible for issuing any securities, income of which is classifiable under the head 'interest on securities', shall collect income tax at the rate of 5.0 per cent upfront on interest or discount, receivable on maturity, from the purchaser of the securities, according to the Income Tax Ordinance 1984.
"We can not understand why the government has proposed to impose such tax on interest on its securities," a senior official of the Bangladesh Bank (BB) told the FE Thursday.
"Definitely, it will hamper the growth of securities market, particularly the secondary one, if the 5.0 per upfront tax on interest on the securities is to be implemented," the central banker explained.
Such an announcement came when both the central bank and the Ministry of Finance are working to develop the country's secondary securities market, the BB official added.
The government has taken a series of measures including withdrawal of the one-year lock-in period for foreigners on its securities aiming to bring dynamism to the secondary securities market.
Besides, the government has already relaxed regulations allowing foreigners to invest in its treasury bonds using Non-Resident Investor's Taka Account (NITA).
Under the relaxations, the purchase is made with funds a Non-Resident Foreign Currency Account (NFCA) or a NITA with a bank in Bangladesh in the name of the purchaser.
"The foreigners are now investing their funds in both primary and secondary bond markets following such relaxations," another BB official said.
Talking to the FE, a senior treasury official of a leading private commercial bank said the Primary Dealers Bangladesh Limited (PDBL) is now working on the issue.
"The PDBL is expected to submit a letter to the central bank soon requesting to take up the matter with the Ministry of Finance for facilitating the country's securities market," the treasury official said.
He also said the government imposed 10 per cent upfront tax on interest on its securities in the FY 2005-05. But it was withdrawn in FY 2007-08 for bringing dynamism in the securities market.
"The activities of the secondary securities market will be hampered seriously if the proposed 5.0 per cent upfront tax on interest on the government securities is to be implemented," he noted.
Currently, on an average, around Tk 2.0 billion is traded daily in the secondary government securities market, according to the BB official.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government's borrowing from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
On the other hand, five government bonds with duration of two, five, ten, 15 and 20 years are being traded in the market.
5.0pc upfront tax set to hamper securities mkt
FE Report | Published: June 13, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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