New 15% tax rate set for capital gains over Tk50 lakh, irrespective of time held
The National Board of Revenue (NBR) has set a 15% tax rate on annual capital gains exceeding Tk50 lakh from the buying and selling of listed company shares, regardless of the holding period.
Previously, a 30% tax rate (40.5% effective rate with surcharge) applied to shares sold within five years of purchase, while shares being sold after five years were taxed at 15% (20.25% with surcharge).
The information was disclosed in a press release issued by the taxing authority today.
In the release, the revenue board stated that it believes domestic and foreign investors will be more inclined to invest in the country's capital market due to the reduction in the maximum tax rate on income tax and surcharge from 40.50% to 20.25% (a rate applied for high-net worth individual tax payers) for the period from 1 July 2024, to 30 June 2025.
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This reduction is likely to attract both domestic and foreign investors, fostering increased investment and growth.
The new 15% rate applies to all taxpayers, including individuals, with capital gains over Tk50 lakh from transactions of listed company securities, it added.
Following the announcement, the benchmark DSEX index of the Dhaka Stock Exchange (DSE) surged by nearly 100 points within 80 minutes. However, the index remained in the red until 1pm.
By the end of the session, the DSEX closed 61 points higher at 5,252.
Under the updated policy, for the fiscal year 2024–2025, if an investor's net assets exceed Tk4 crore, Tk10 crore, Tk20 crore, or Tk50 crore, they will face surcharges of 10%, 20%, 30%, and 35%, respectively.
For example, investors with over Tk50 crore in net assets will pay a 20.25% effective tax including surcharge, as per the notification.
In response to the new tax rate, Saiful Islam, president of the DSE Brokers Association (DBA), in a press release said the issue of tax reduction on capital gains was crucial for enhancing liquidity and revitalising the market after a prolonged recession.
"We had recommended to the finance adviser that the existing capital gains tax be withdrawn. On behalf of the DBA, we express our sincere gratitude for considering our recommendation and reducing the tax rate on capital gains to 15%," he said.
"This reduction is likely to attract both domestic and foreign investors, fostering increased investment and growth," he added.
Highlighting that the entire market responded positively to the announcement, SM Galibur Rahman, head of Research and Strategic Planning of Shanta Securities, told The Business Standard, "High net-worth investors will see a capital gains tax reduction to a maximum of 20.5% from the previous 40.5%. This should work as an incentive for them to invest in the market.
"This new policy is also a testament of the new government's commitment towards a healthier stock market," he added.
However, Abdul Kader Nabil, head of the Corporate and Intermediaries Department at LankaBangla Securities, emphasised the need for further reforms, calling for a reduction in the tax rate on dividends which is a significant challenge for the capital market.
He said, "Companies declare dividends based on net profits after paying corporate tax. Individual taxpayers then face taxation on these dividends at the regular rate when filing their returns, which can be as high as 40.50%. For instance, after a corporate tax rate of 37.50% for a bank or insurance company, the total tax burden – including the maximum surcharge – can reach approximately 62.81% when accounting for taxes paid by the company directors."
"This high level of double taxation discourages many directors from offering attractive cash dividends, creating a barrier to the development of long-term investors in the capital market," he added.
Nabil also noted that according to Section 117 of the Income Tax Act 2023, tax deducted at source from dividends should be declared as a final tax.
Market reaction
EBL Securities, in its daily market review, said the benchmark index of the capital bourse, following a modest pullback in the previous session, rebounded strongly as investors' confidence strengthened on the back of a recent announcement about the rationalisation of capital gain tax, which has been viewed as a positive development, sparking renewed buying interest and boosting overall market sentiment.
The market opened with a subdued tone and remained jittery through much of the session. However, momentum shifted sharply in the latter half following the announcement of new policy measures related to capital gain tax. This development sparked a significant surge in investor sentiment, propelling a strong upward move across key indices, it added.
Today, market turnover also rose to Tk565 crore against Tk435 crore in the previous session.
On the sectoral front, pharma issues exerted the highest turnover, followed by bank and textile sectors.
All sectors, except mutual funds, showed positive returns, out of which paper, financial institutions and services gained the most on the bourse.
Out of the 397 issues traded, 257 advanced, 104 declined and 36 remained unchanged.
