Capital gain tax exemption for individual investors likely to go

Levying tax on capital gains of individual investors in the capital market is a likely option the revenue board considers incorporating into the upcoming budget, sources said.
The cue comes from the IMF during review of its loan-package terms set for the government, which include financial reforms some of which, analysts say, already began creating pains.
Individual investors in the capital market have enjoyed tax incentives since 2015, under fiscal measures aimed at developing the fledgling securities market in Bangladesh.

According to the sources, the move came following recommendations from the International Monetary Fund (IMF) as one of the measures to trim down tax expenditure and enhance revenues to attain its target of tax-GDP ratio  rise by 0.5 per cent within the next financial year (2024-25).
Currently, an individual, except for sponsor -shareholders, is not required to pay tax on gains from sales of shares of a listed company as per SRO 196 dated 30 June 2015.
In the Income Tax Law 2023, the National Board of Revenue (NBR) has kept the provision unchanged to make the capital market vibrant and facilitate marginal investors.
Sources say the tax authority now envisages withdrawal of the tax benefits in some key sectors, including capital market, which have been offered years back and still in place.
Tax officials say it would be difficult to mobilize higher domestic revenue unless the government phases out the tax exemptions that ate up nearly 3.0 per cent of the tax-GDP balance.
"The country's tax-GDP ratio is poor, 7.9 per cent, which is much criticised by different quarters and economists while any move to withdraw tax exemptions to widen tax net is also criticised at the same time," says one revenue official.
The IMF has recommended that the NBR withdraw the tax waivers on individuals' profit gains from share market and impose tax at regular rate on their income.
Currently, capital gains from transfers of state-owned enterprise (SOE) shares and government securities, including treasury bonds, bills and other government debt securities, are considered taxable. Also, sponsor-directors and owners of over 10-percent shares have to pay 5.0-percent tax on capital gains from the transfers of their shares, according to the SRO.
In Bangladesh, the capital -gains tax is 15 per cent if assets are held for five consecutive years and then transferred or sold.
In a report submitted to the NBR on March 2024 after a ten-day discussion, the tax-policy mission of IMF's Fiscal Affairs Department, comprising David William Baar, Arbind Modi and David Robert Wentworth, recommended repealing allowances and reductions, abolishing tax benefits on capital gains for the share market, remittances, zero-coupon bonds and investment rebates on bonds.
A senior tax official says the recommendations of the IMF and other think-tanks are under active consideration of the NBR, but "some sensitive issues need intensive discussion and approval by government high-ups".
Chartered Accountant Snehasish Barua, tax expert and a director at SMAC Advisory Services Ltd, mentions that individual investors, both marginal and large, are enjoying the benefits for long while the tax incentives are meant for encouraging investment by small ones.
"The government should analyse the data collecting from Bangladesh Securities and Exchange Commission (BSEC) on how many small investors are getting capital gains from share market and its volume," he says.
Accordingly, the revenue authority can set an exemption ceiling and impose tax on those getting higher profits, he suggests.
Until April 25, 2024, there are 1.34 million Beneficiary Accounts (BOs) with share balances in the country, Central Depository Bangladesh Limited (CDBL) data showed.
Meanwhile, the IMF team carried on hectic appraisal mission here ahead of release of the next tranche of a US$4.7-billion loan the government has obtained from the multilateral financier amid foreign-exchange crunch in the country.
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