Tax Relief

Utilized for tax breaks for all buyers on all kinds of bonds

| Updated: January 02, 2022 9:10:58 AM

The Securities Commission has recommended that tax exemptions be made available to all investors of all types of bonds in order to encourage the mobilization of funds in the capital market in the interests of the industrialization of the country.

The Bangladesh Securities and Exchange Commission (BSEC) recently suggested this in a letter to the chairman of the National Board of Revenue (NBR).

Currently, retail investors who are not banks, insurance companies and financial institutions are entitled to tax exemptions on income from investments in zero coupon bonds.

However, none of the income from investments in other types of bonds is tax-exempt.

As a result, many investors are not encouraged to invest in bonds, while issuers are also less interested in raising funds through such instruments.

With this in mind, the BSEC has proposed that all investors, including banks, insurance companies and financial institutions, be granted tax exemption on their income from investing in all types of bonds.

BSEC spokesman Mohammad Rezaul Karim says one of the main obstacles to the bonds is the lower interest of issuers given the poor returns on such debt.

“Issuers are encouraged to issue large amounts of bonds when bond yields are high. Then companies will be interested in raising funds that issue bonds without taking out bank loans.”

Mr Karim says the recommendation on tax exemption is also in the interests of the bond market and investors.

The letter from the BSEC points out that some changes are required in the bond-related sections of the 1984 Income Tax Ordinance.

“If the recommendations are taken into account, this would encourage the mobilization of long-term funds in the capital market for industrialization purposes and thus increase the overall economic development of the country by creating more employment opportunities.”

This would also increase the state’s total revenue, the letter said.

The BSEC also recommends revising the definition of publicly traded companies registered in Bangladesh under the Companies Act 1994 to replace the word “stock” with “securities”.

With a view to the development of the bond market, the regulator approved various types of bonds after the incumbent commission assumed responsibility in May 2020.

In 2021, the BSEC allowed 23 companies to borrow Tk 125.73 billion through bonds with various properties and sukuk, a bond-like instrument.

Features of the BSEC approved bond include zero coupon, perpetual and coupon bearing bonds, fully redeemable, convertible.

The regulator also approved a green bond. It is also interested in allowing community borrowing and a proposal is also being processed. The Revenue Board has already offered tax incentives to invest in Sukuk.

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