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Govt set to earn over Tk 1.0b in capital gains tax

DSE-Chinese consortium deal

May 20, 2018 00:00:00

Mohammad Mufazzal

The government would get around Tk 1.1 billion in taxes at source from the revenue earned by the Dhaka Stock Exchange (DSE) through the sale of its shares to the Chinese consortium, now a strategic partner of the country's premier bourse.

As per the section 53 (N) of the income tax ordinance, the tax will be imposed on capital gains of the TREC (Trading Right Entitlement Certificate) holders of the DSE at a rate of 15 per cent.

The premier bourse signed a share purchase agreement with Chinese consortium comprising Shenzhen Stock Exchange and Shanghai Stock Exchange on May 14 last.

As per the agreement, the Chinese consortium will be the strategic partner of the DSE by purchasing its 25 per cent or above 450.94 million shares at a price of Tk 21 each.

On completion of relevant formalities, 250 shareholders of the DSE are expected to receive over Tk 9.46 billion from the consortium. Each of DSE shareholders will be required to transfer 25 per cent of their share to the Chinese consortium.

The tax at source will be deducted from capital gains of the DSE's shareholders, also the TREC (Trading Right Entitlement Certificate) holders, at a rate of 15 per cent.

"The amount of tax that will be paid against exchange's transfer of shares will be around Tk 1.1 billion or above considering approximate amount of capital gains," said an informed source.

However, the amount of capital gains will vary from one TREC holder to another due to their different costs of acquisition.

They said those who became the members of the premier bourse before 2006 will have to pay tax at source as their costs of acquisition are less than the amount they would get by selling 25 per cent stakes.

But the situation will be different for those who had purchased membership at a very high cost after 2006.

The DSE officials said the cost of acquisition of most of the TREC holders, who became DSE members until 2006, is Tk 8.0 million.

Afterwards, 12 memberships were sold at Tk 320 million each and those members will not be required to pay tax at source as the cost of procurement of their shares is much higher than the amount to be realised from the Chinese consortium.

Md. Shakil Rizvi, a former DSE president, said during inception the DSE had a provision to sell exchange's shares to 250 members.

"But the DSE's shares were under subscribed until 2003 as only 195 purchased memberships. After 2003, 35 memberships were sold to institutions and individuals at a price of Tk 8.0 million each," Rizvi said.

He said that before 2003, the DSE members continued their operation as proprietors and later their firms were made shareholding companies having a paid-up capital, valued at Tk 8.0 million each, in 2006 in line with the instruction of the securities regulator.

"The cost of acquisition of DSE TREC holders, who purchased membership before 2006, will be Tk 8.0 million. The tax will be imposed on the amount beyond the cost prices of Tk 8.0 million," Rizvi said.

He, however, said the DSE earlier had made a plea to get waiver from payment of tax to be levied on the transfer of exchange's shares to the strategic partner.

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