A high-ranking official from the NBR, speaking anonymously to TBS, disclosed that the Statutory Regulatory Order (SRO) from July 1, 2015, which provided individual investors with an exemption from paying capital gains tax on stocks, mutual funds, bonds, and debentures listed on the market, could be annulled before the conclusion of this fiscal year.
Should this measure come into effect, individuals might find themselves liable to pay a capital gains tax ranging from 5% to 25%, depending on their regular income tax bracket.
Nevertheless, sources within the NBR have hinted that the initial tax rate on capital gains arising from publicly traded securities for individual investors could be lower. Still, there might be a gradual increase in taxes, although the exact framework remains undecided.
For example, gains from listed securities below a specified threshold might be exempt from taxation. Alternatively, investors who sell securities below a certain threshold could qualify for a tax exemption, akin to the system in place in India.
Furthermore, there are intentions to introduce a holding period requirement, wherein capital gains from short-term trading of listed securities might incur higher taxes, as suggested by NBR officials who are closely studying models from comparable nations.
In India, individual investors in the stock market are subject to a capital gains tax of 15% if they sell securities within the first year of acquisition. This rate decreases to 10% if the holding period exceeds 12 months. Additionally, gains are only taxed on proceeds exceeding 1 lakh rupees for individuals holding securities for over a year.
Institutional investors in India face capital gains taxes ranging from 15% to 40% for short-term trades, which decrease to a range of 10% to 20% for gains from long-term investments.
In Bangladesh, individuals have historically been exempt from paying taxes on their capital gains from listed securities. In an attempt during the mid-2010s to impose taxes on individual investors' capital gains, the NBR encountered significant opposition and eventually backed down.
Individuals are subject to a general capital gains tax of 15% in Bangladesh if the holding period exceeds five years. For shorter holding periods, the rate depends on the taxpayer's income tax bracket. Conversely, companies are required to pay a flat capital gains tax rate of 15%, regardless of the holding period.
However, as an encouragement for capital market growth, companies have only had to pay a 10% tax on their capital gains from listed shares and other securities since July 2015, while the rate is 5% for sponsor-directors or shareholders with a stake of 10% or higher in listed firms.
Additionally, mutual funds that pool public funds and professionally invest in listed securities are exempt from paying capital gains tax.
Market experts express concerns
Nevertheless, concerns have been voiced by professionals in the capital market regarding the potential elimination of the exemption on individuals' capital gains tax. They point out that individual investors outnumber institutions in the nation, and their mood could further dampen the already bearish stock market sentiment.
Mohammad Ali, a certified accountant and former vice president of the DSE Brokers Association of Bangladesh, conveyed to TBS, "The implementation of taxation on individual stock market gains this year could prove detrimental to capital market progress, especially given that investors are already grappling with losses due to the market downturn."
Within a span of fewer than three months, the DSEX, the benchmark index of the Dhaka bourse, plummeted by nearly 1000 points to 5518 on Thursday, marking a low not seen in 36 months.
He advocated that the government should permit the market to evolve in sync with the economy before contemplating taxes. As an illustration, he pointed out that the Indian government commenced taxing their capital market gains after significant maturation and expansion of both the market and its investors.
"India initiated the taxation of long-term capital gains in 2018, after two centuries of their stock market history, whereas Bangladesh has a long journey ahead," Ali emphasized.
Saiful Islam, the president of the DSE Brokers Association, highlighted that in light of the substantial decline witnessed by the stock market this year, it urgently requires policy reinforcement.
He cautioned against the prospect of additional tax burdens, stating that it would be harmful to both the market and investors, remarking, "Introducing a new tax during a downturn would deter investment."
Abu Ahmed, an expert in the stock market and former economics professor at Dhaka University, observed that stock investors in Bangladesh have nearly disregarded capital gains amidst the prolonged bearish trend since the crash of 2010-11.
He expressed doubts about the government's ability to generate sufficient revenue from the proposed measure, suggesting, "Instead, the capital gains tax could inflict significant harm on investors."
In September 2022, speculation about the imposition of a capital gains tax on individuals triggered a sharp sell-off in the market.
Echoing Professor Abu Ahmed's views, Minhaz Zia, a certified financial analyst and chairman of NorthStar Investments Bangladesh Ltd, remarked that the IMF offers generic recommendations for countries seeking its assistance, leaving it up to the governments to decide which incentives to maintain and which to discard.
