The demand was put forward at a pre-budget press briefing on Tuesday at a time when the National Board of Revenue (NBR) considers imposing the tax in efforts to raise the government's revenue income.
The revenue authority has proposed imposing tax for the first time on capital gains of individual investors only when the income in one's portfolio exceeds Tk 4 million.
"The market has been passing a critical juncture. Any new tax would become burdensome for individual investors as the market is still under pressure due to the fallout of the pandemic and the Russia-Ukraine war," said Professor Dr Hafiz Md Hasan Babu, chairman of the DSE, at the briefing.
The finance minister will unveil the national budget for FY25 on June 6.
The DSE chairman said about 90 per cent of the shares were in the hands of institutional investors and sponsor-directors and they had already been paying 5 to 10 per cent tax on capital gains.
"The remaining 10 per cent shares are with individual investors. If the capital gain tax is applied to individual investors, there will be a negative impact on the market."
The news of capital gain tax has already triggered a fresh round of sell-off, dragging the prime index down 446 points in the past nine days while the market-value shed Tk 643 billion.
Moreover, the daily turnover on the DSE plunged to a five-month low to Tk 3.23 billion on Sunday. After a single-day break, the index again lost almost 32 points to 5,278 on Tuesday.
Referring to the present market condition, the DSE chairman urged the NBR chief to refrain from making capital gains tax on individual investors effective.
"We have already submitted our proposals to the National Board of Revenue, the Ministry of Finance and the Bangladesh Securities and Exchange Commission."
The DSE head spoke of five demands, including widening of the corporate tax rate gap between listed and non-listed firms. He also said the tax rate on commission income from share transactions by brokerage firms should be reduced alongside an increase in tax-free dividend income up to Tk 50,000 annually and tax exemption on interest income from all kinds of bonds.
Prof Hasan Babu demanded that the tax rate gap be fixed at 12.5 per cent to encourage good companies to float shares to the public.
The corporate tax for listed companies should be lowered to 17.50 per cent from the existing 20 per cent.
If more companies get listed in the equity market, the DSE chief said, the government's revenue would also go up in this segment in the future, alluding to financial transparency that listing requires.
Currently, listed firms other than banks, insurers, NBFIs, mobile operators, and tobacco firms, which issued shares equivalent to more than 10 per cent of their business, pay 20 per cent corporate tax, irrespective of the amount of cash or cashless transactions they make, while their non-listed peers pay 27.50 per cent tax.
The rate is 22.5 per cent for the listed firms that floated shares comprising 10 per cent or less of the paid-up capital.
The tax rate is 25 per cent, instead of 22.5 per cent, if companies fail to keep cash transactions within Tk 3.6 million per annum. Similarly, 20 per cent tax will be increased to 22.5 per cent if companies with more than 10 per cent free float fail to meet the condition.
In meeting the condition meant to encourage cashless transactions, a single transaction should not exceed Tk 0.5 million in a year.
Meanwhile, the NBR suggested reducing 2.5 per cent corporate tax for non-listed firms complying with cash transaction limit, which would bring down the tax gap between listed and non-listed firms to 5 per cent from the existing 7.5 per cent.
However, the corporate tax rate for publicly-traded companies may remain unchanged, provided the condition is met.
Replying to a query, the DSE chairman said the exchange was working to bring good companies, including the state-run entities, to the market.
"We have already held meetings with the DSE Brokers Association of Bangladesh and the CEO forum following the prime minister's order to bring state-run companies to the stock market," said the DSE chairman.
Recently, Prime Minister Sheikh Hasina asked the Finance Division of the Ministry of Finance to take effective steps for possible listing of state-owned enterprises (SoEs) in the capital market.
Replying to a query, the DSE chief said the prime bourse needed more power in order to ensure quality listings, which would boost investors' confidence.
He also demanded tax exemptions on interest income from all kinds of bonds including Sukuk and asset-backed securities similar to zero-coupon bonds.
"A vibrant bond market may help the economy in different ways. If tax exemption is implemented for all kinds of bonds, it will help the bond market flourish."
He also urged the NBR to bring down tax on commission income from share transactions to 0.015 per cent from the existing 0.05 per cent.
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