Bangladesh's capital market has taken a significant step toward fulfilling the requirements for a market upgrade by aligning the trading cycle of foreign portfolio investors with that of local ones.
The development came on Wednesday through a circular issued by Bangladesh Bank (BB), which lifted the requirement for foreign portfolio investors to submit a tax certificate after the execution of every sale order.
Overseas investors will now be required to provide a tax certificate only once — before the repatriation of their funds from Bangladesh — consistent with the practice in other countries, including India.
As a result, foreign portfolio investors will be able to have their funds transferred into their accounts without delay, in line with the T+2 trading cycle applicable to local investors.
Under the previous provision, foreigners had to wait for the completion of the tax certificate submission process before receiving their sale proceeds — a process that could sometimes take 10 days or more. This prevented them from reinvesting immediately after selling securities.
"Foreign portfolio investors would complain that a T+10 or T+15 trading cycle was effectively applicable to them, compared to the T+2 cycle for local investors," said a senior official of the Dhaka Stock Exchange (DSE), who requested anonymity.
Global agencies responsible for market assessments and reclassifications had also flagged this provision as one of the key obstacles to the country's capital market being upgraded from frontier to emerging market status. The provision had further left foreign fund managers in a dilemma when allocating funds.
In its circular, the central bank noted that the tax certificates required after every sale order — to determine applicable capital gains tax — caused significant delays in fund repatriation and reinvestment.
Foreign investors conduct transactions through NITA (Non-Resident Investors Taka Account). The central bank decided to scrap the existing provision in order to streamline investment operations through NITA and reduce procedural delays, turnaround time, and compliance costs for non-resident investors, while still ensuring that applicable taxes are collected before repatriation.
"Sale proceeds of shares/securities shall be directly credited into the respective NITA. The authorised dealers shall ensure the deduction/withholding of applicable taxes against capital gains, if any, from the sale proceeds of shares/securities held by non-resident investors, for eventual payment to the government exchequer prior to repatriation abroad," reads the BB circular, which came into force immediately.
A recent FE report detailed the difficulties faced by foreign investors, including increased investment costs and time lost due to the tax certificate requirement following every sale order.
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