BB seeks tax exemption for banks, FIs, insurance cos

The central bank has advised the tax authorities to make the revenue earned from investment in the zero-coupon bonds by banks, financial institutions (FIs) and insurance companies tax-free.
The BB governor Dr Atiur Rahman made the suggestion in a recently-sent Demy Official (DO) letter to the National Board of Revenue (NBR) Chairman Nojibur Rahman.
He requested the NBR chief to consider reintroduction of the tax exemption provision in the income tax ordinance. The government in 2007 had scrapped the provision that allowed the banks, FIs and insurers to enjoy the tax exemption facility on account of their earning from investments in the zero-coupon bonds.
The central bank initiated the move when it found the contribution of the corporate bonds to the country's GDP highly insignificant, only 0.20 per cent, compared to that of the other neighbouring countries in Asia.
In a Statutory Regulatory Order (SRO) issued in 2005, the government had offered tax-free facility on income of the companies, authorised by BB and Bangladesh Securities and Exchange Commission (BSEC), from investment in the zero coupon bonds.
Currently, individual and companies, barring banks, nonbanking financial institutions and insurance companies, are enjoying tax-benefit on interest earning from the zero coupon bonds. Banks, Non-banking Financial Institutions (NBFIs) and insurance companies have to pay tax at regular rates on the earnings from investment in the corporate bonds.
In the budget proposal for the fiscal year (FY) 2015-16, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has also proposed allowing the banks, insurance and NBFIs to avail the tax benefit.
"A zero coupon bond is a money market instrument. If the key players (banks, insurance and financial institutions) of the money market can avail such tax exemption facility, Zero coupon bond will be more popular and widely used as a source of funding and only then the ultimate benefit of adding the new clause to income tax law will be reaped," the apex body said in its budget proposal, to be placed before the Finance minister on May 12, next.
Talking to the FE, Asad Khan, Managing Director of Prime Finance and Investment Limited, said the financial market needs tax benefit for a certain period of time to revive the corporate bond market.
"Tax-exempted return from investment in bond can make the financial market vibrant. We want some tax-benefit from the government on zero coupon bond," said Mr Khan, who is also Chairman to the Bangladesh Leasing and Finance Companies Association (BLFCA).
On re-introduction of Tk 25,000 as tax-free ceiling, Mr Khan said the limit is insignificant considering the transaction volume of the financial sector.
Financial institutions' participation in the bond market can also benefit the government ensuring higher receipt of corporate tax, he added.
Akter H Sannamat, Managing Director (MD) of Union Capital Limited, said the financial institutions should be encouraged to invest in corporate bonds to make the bond market vibrant.
In the letter, the BB governor stressed the need for a coordinated effort of the BB, the BSEC and the NBR to popularise the bond market in Bangladesh that can create an avenue for an alternative and long-term funding source.
Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy these at lower price than their face value, which is the amount a bond will be worth when it matures. When a zero coupon bond matures, the investor receives one lump sum amount.
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