All up front, advance tax on govt bonds abolished

FE Team | Published: June 08, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
The country's secondary bond market is likely to flourish due to proposed budgetary measures of abolishing the provision of all up front and advance tax on government bonds.
Finance Adviser Mirza Azizul Islam in his budget speech Thursday proposed to abolish the provision of all up front and advance tax on government bonds to create a competitive market for such bonds.
As an alternative source of financing investment, the finance adviser also proposed to exempt earning generated from zero-coupon bond from income tax.
The Bangladesh Bank (BB) earlier proposed to the government for amending the tax payment system of bonds and securities aimed at activating the country's bond market.
Under the proposed measures, tax on bonds would be paid at the time of paying coupon interest instead of up front income tax for the whole tenure of the securities.
Under the existing rules, the bondholders can receive coupon interest on the government-approved securities on a half-yearly basis.
Currently, tax is charged at source on the basis of the period of holding the bonds at the existing rate of 10 per cent for both individual and institutional investors.
"As part of our endeavour to make the participation of the institutional buyers in treasury bond markets easier, amendment to the guidelines for provident funds, insurance funds and the like is on the card," the adviser said.
He also said that more emphasis would be laid on financing through medium and long-term marketable securities like medium-term and long-term treasury bonds.
The market players have appreciated the announcements as positive steps of the caretaker government saying that the demand of government approved securities, particularly bonds, will be increased in the near future.
"The country's secondary bond market will be activated if the government implements all budgetary measures accordingly," a senior official of a private commercial bank told the FE.
He also said the investors might be encouraged to invest in the government bonds due to abolition of the provision of all up front and advance tax on the bonds.