The securities' regulator has sought 'specific instruction' from the revenue board on deduction of tax at source from unit holders during liquidation of mutual funds (MFs) for the sake of MF industry.
 "A specific instruction is required for deducting tax at source while liquidating the MFs. Otherwise, the small investors, MF industry and the government's revenue earnings will be affected seriously," the securities' regulator said in a letter sent to the chairman of National Board of Revenue (NBR) on September 5.
The Bangladesh Securities and Exchange Commission (BSEC) has sought NBR's instruction in the backdrop of its previous instruction to deduct tax at source considering the unit holders' accumulated profit as dividend in accordance with the section 2(26), 54 and 56 of the Income Tax Ordinance, 1984.
Two closed-end MFs -- AIMS First Guaranteed MF and the First Scheme of Grameen MF One completed liquidation process in June last and subsequently the NBR asked the trustees of these funds to deduct tax at source from the unit holders' accumulated profits.
Complexities also emerged as the revenue board instructed the trustees to consider the units' face value as cost price.
The BSEC said market price, stock dividend and re-investment units will have to be taken into account in determining the cost price of the units purchased by a unit-holder.
As per section 54, the companies pay 20 per cent tax on dividend income, whereas 10 per cent tax is imposed on the income of individuals having Taxpayer Identification Number (TIN) and 15 per cent on the income of individuals who have no TIN beyond their tax-free limit of Tk 250,000.
"The dividend mentioned in the section 2(26) means the dividend disbursement by a company to its share holders. So, this section cannot be applicable to MFs as these are not companies," the BSEC said in its letter.
The BSEC also said across the world the MFs are not treated as companies.
The MFs are also not described as companies in a review paper issued by the revenue board, the BSEC observed.
The securities regulator also said in its letter that the MFs are not companies and as per the Securities and Exchange Commission (Mutual Fund) Rules 2001, and such fund is one kind of trust under which public funds are collected by distributing units.
"Company and Trust are totally different as per the section 2(20) of the Income Tax Ordinance 1984 and the Trust Act 1882," the BSEC said.
The trustees of the AIMS First Guaranteed MF and the First Scheme of Grameen MF One have set aside a fund worth around Tk 300 million as payment of tax source.
The securities regulator asked the trustees not to hand over the fund to revenue board until the complexities are resolved.
mufazzal.fe@gmail.com
BSEC seeks \'specific instruction\' from NBR
Mohammad Mufazzal | Published: September 08, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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