Stock investors may face 15% tax on capital gains exceeding Tk50 lakh 

Infographics: TBS

The finance ministry plans to impose a 15% capital gains tax on stock market earnings exceeding Tk50 lakh by individuals in the upcoming national budget. Currently, individual stock investors do not pay any capital gains tax.

Finance ministry officials told The Business Standard that this initiative aligns with IMF recommendations aimed at enhancing revenue collection and ensuring fiscal discipline within the country's economic framework.

In 2015, individual investors were exempted from paying tax on capital gains from stocks, mutual funds, bonds, and debentures – a provision that may be revoked by the end of this fiscal year.

Capital market stakeholders have expressed concerns regarding the potential removal of the waiver of individuals' tax on capital gains. They highlight that individual investors outnumber institutions in the country, and their sentiment could further dampen the already bearish stock market.

Saiful Islam, president of the DSE Brokers Association, told TBS, "We do not want any tax burden on the capital market now, as it has been suffering for several years amid the global crisis. Any tax imposition will negatively affect the market, causing hardship for general investors."

He also mentioned that brokerage firms have been struggling for several years due to lower market participation amid the ongoing crisis. The imposition of a capital gains tax could create further uncertainty for the capital market.

Mazeda Khatun, president of the Bangladesh Merchant Bankers Association, told TBS that it is not the right time to impose a capital gains tax for individual investors in the capital market, even though the government aims to enhance revenue collection.

"The capital market may react negatively to this, as the overall situation is currently very volatile," she added.

Mohammad Ali, a chartered accountant and former vice president of the DSE Brokers Association, previously told TBS, "Implementing taxation on individual stock market gains this year would be detrimental to capital market development, given that investors are already experiencing losses due to the market downturn."

He suggested that the government should allow the market to develop in line with the economy before considering taxes, citing India's example where capital gains tax was introduced after significant market maturity and growth.

"India started taxing long-term capital gains in 2018, after 200 years of their stock market history, whereas Bangladesh has a long way to go," Ali added.

Abu Ahmed, a stock market expert and former economics professor at Dhaka University, said stock investors have nearly forgotten about capital gains amidst the prolonged bearish trend since the 2010-11 crash.

He expressed scepticism about the government generating sufficient revenue from the proposed measure, suggesting, "Instead, the capital gains tax could significantly harm investors."

Since last February, the market has been in a bearish run, with recent talks about implementing a 15% capital gains tax for individual investors in the upcoming budget intensifying investor panic and leading to a sell-off of their holdings throughout May.

Meanwhile, the DSE argued that any new tax would burden capital investors, especially given the market's critical condition due to factors like the pandemic, the Russia-Ukraine war, and the global economic crisis.

Sponsors and directors of listed companies currently face a 5% tax deduction at source on capital gains from share transfers. The finance ministry is expected to increase this rate to 15% in the upcoming budget.