Another fiscal incentive on sukuk is ready to make its transaction cheaper and popular on the alternative bond market that plays by Islamic law book on financial matters.
Officials say the latest tax waiver is packaged with the aim of making the sukuk lucrative to investors by exempting it from all types of tax at source.
The income-tax wing of the National Board of Revenue (NBR) has decided to waive Tax Deducted at Source (TDS) on transactions of sukuk -- a newly devised Islamic financial instrument -- between Originator and Special Purpose Vehicle (SPV).
In the lead-up to introduction of the tool in a broader financial ecosystem, the budget for the current fiscal year has provided for waiving gain tax, at a rate of 4.0 per cent, on capital gains from transfer of asset to the SPV of sukuk.
Later on September 7, the VAT wing of the revenue board dismantled the value-added tax on sales and purchases of assets between originator and SPV of sukuk. The VAT applicable to rent or lease of assets between them has also been waived through issuing an SRO.
Official sources said a Statutory Regulatory Order or SRO would be issued "soon" offering the fresh exemption from payment of TDS.
Sukuk is akin to a treasury bond and complies with the sharia sanction regarding financial dealings -- the way Islamic banks operate.
The market size of Islamic banks is an estimated 35 per cent of the total banking sector.
However, sukuk has yet to gain popularity as both banks and individual investors are still in a 'wait-and-see' approach to investment in the real asset-backed security.
An issuing company of sukuk will get back the asset after expiry of the leasing time or end of the term.
Last April, Beximco became a maiden Bangladeshi company to decide to issue the first-ever private-sector sukuk styled 'Al Istisna' quoting Tk 30 billion. It happens to be the largest-ever issuance of securities in the private sector of Bangladesh.
Islamic banks cannot buy traditional bonds like their conventional counterparts since bonds are interest-based, and hence tabooed in the theological tenets.
However, the biggest bet on it had come from a sovereign wealth or state wealth. In December 2020, the government issued the first-ever Tk 80-billion worth of sukuk for a safe-water-supply project.
Sovereign sukuk is the main contributor to the global sukuk market.
A senior official of Islami Bank Bangladesh Limited said, "Sukuk is yet to gain popularity on the market as investors have yet to come out from theoretical concept."
He adds: "So far, banks have responded to it for implied persuasion by the central bank."
He hopes the slew of fiscal incentives may encourage people to invest in the new instrument.
The government could focus on popularising several sovereign sukuk tools by issuing several instruments before opening it for private sector to invest in.
"The Bangladesh Bank-issued Tk 80 billion sukuk was heavily subscribed by both Islamic and conventional banks even though having a lower rate of interest, 4.69 per cent, than the 9.0 per cent from private issuers," he said.
Islami Bank invested Tk 8.92 billion in the government sukuk, he added.
