Sukuk trustees to enjoy tax waiver

In a bid to popularise Sukuk, a form of Shariah-compliant asset-backed securities, the government is going to announce an income tax waiver for the special purpose vehicle (SPV) entities that work as the trustee of Sukuks.

Also, all transactions between the originator and SPV of Sukuks would enjoy a waiver from source taxes, according to a draft statutory regulatory order prepared by the National Board of Revenue (NBR).

In asset-backed securities, SPV owns and works as the trustee of the underlying assets bought with the investors' money, while the originator remains as the beneficiary and user of the assets in exchange for a predefined rent over the agreed period.

Once the originator hands over the assets to the SPV, which works as the trustee of the Sukuk, and finally, as soon as the originator pays the investors back, the SPV hands over the asset to the originator.

The entire process includes many big transactions, asset transfers only for the purpose of securitisation and liquidation later which were in need of a waiver from the traditional taxes, said Ershad Hossain, managing director of City Bank Capital Resources, a leading local merchant bank advising and arranging a Tk3,000 crore Sukuk being originated by Beximco Ltd.

Earlier, in the national budget for this fiscal year, the government waived the 4% capital gain tax on the transfer of the underlying assets of Sukuk and the two waivers together would help reduce the cost of Sukuk, said Hossain.

Still, the assets, especially project properties, are still subject to very high registration costs and stamp duties that need to be addressed sooner, he said.

"The processing cost should be nominal to popularise the new securities the Bangladesh economy needs too much at this moment," the bond expert added.     

Since Professor Shibli Rubayat-Ul-Islam joined the Bangladesh Securities and Exchange Commission (BSEC) as its chairman in May last year, the regulator has been working to inspire Sukuk so that capital intensive projects get financed by bond investors at home and abroad.

The BSEC has already approved the Beximco Sukuk that would support the company to build its solar power infrastructures and expand textile facilities.

Also, the Bangladesh Bank issued a Tk8,000 crore Sukuk earlier this year which was originated by the government to finance its safe water project.