Listed companies have urged the National Board of Revenue (NBR) to eliminate multiple taxation on inter-company dividend and establish an introductory version of participation exemption (PE) regime in the country.
PE is related to exemption from taxation for a shareholder in a company on dividends received, and potential capital gains arising on the sale of shares.
The justification for a participation exemption is to eliminate double taxation of shareholders.
Bangladesh Association of Publicly Listed Companies (BAPLC) made the appeal Tuesday when a delegation of the association, led by its vice president Anis A Khan, called on Md Mosharraf Hossain Bhuiyan, chairman of National Board of Revenue (NBR), in the city.
"In Bangladesh, dividend income is taxed further (although shareholders have already paid corporate tax on that income) in the hands of shareholders, be it individual or companies," reads a BAPLC letter submitted to the NBR chairman.
It said there is a global trend towards exemption of tax rate on all form of dividend and capital income.
Policy makers of many developed economies are now recognising that, addition tax on dividend income distorts saving and investment decisions and eventually reduce economic growth of a country.
"For Bangladesh, it may be difficult to abolish the taxation on dividend in full but investment can be encouraged both from local and foreigners by at least abolishing the taxation on dividends flowing between company to company," a BAPLC source told the FE Tuesday.
"We, therefore, urge NBR to review the relevant sections of Income Tax Ordinance of 1984 and impose tax on dividends only when it is paid to a natural person, including amendment of paragraph kha(2), first part of the second schedule of the Finance Act, 2015."
"We believe, abolishing multiple taxation on dividend income would remove the impediments to attain the most efficient business structure as well as improve the integrity of our tax system in line with global best tax practices, which will spur the growth of Bangladesh's capital market," the BAPLC source told the FE.
Bangladesh has been pressing need for investment resources to build more and more mega infrastructure projects and experts believe a major portion of the fund may be mobilised from the stock market, if necessary reforms could be brought in the market, now suffering from lack of depth and diversity.
Unfriendly tax laws are also a barrier to attract the fundamentally strong local and foreign companies.
Big local companies like Akij Group, Abul Khair Group, Bashundhara, City Group, Meghna Group, Partex and PHP are yet to go public, mainly because of unfriendly tax laws, market experts said.
Even some of the 26 state-owned enterprises that were instructed to offload their shares in the stockmarket are being resolutely defiant in doing so, dragging the matter for almost 11 years now.
So far, only eight have offloaded their shares.
"The Government of Bangladesh has rightly pointed out the importance of capital market and continuing its all-out efforts to develop the market after its tragic collapse in 2010. We understand that a large number of institutional investors are willing to invest in our market but due to our unfriendly tax laws they are not moving forward," the BAPLC letter pointed out.
Bangladesh needs at least US$15-18 billion per annum investment into infrastructure sector as infrastructure development is the precondition to attract FDI as well as local investment.
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