It is proposed to impose a tax on the capital gains of government securities – treasury bills and treasury bills – in a fiscal year when investors expected incentives instead.
The Dhaka Stock Exchange (DSE) is about to start hosting exchange trading of the most important market instrument in a bid to develop the country’s much-needed secondary bond market.
We need to attract investors in order to create a market that will allow issuers – government, corporations and others – to raise money through the issuance of bonds.
I fear that the capital gains tax on treasury bills will discourage potential investors as bond investing is relatively less popular in the country.
Currently, local individuals do not have to pay tax on capital gains on stocks and other listed securities. Why would they opt for Treasury bonds?
The proposed capital gains tax will put government securities at a disadvantage as an asset class in the market.
No capital gains tax on Treasury instruments would encourage institutions to put their money in government securities.
Banks, non-bank financial institutions and insurers must hold treasury bills to comply with their regulatory requirements and they must apply for them prospectively and not retrospectively if the gains tax is ultimately imposed.
The application of capital gains tax on government securities will discourage primary dealers and other banks from dealing in government securities, which take the risk of holding government securities at a yield lower, to create a market for them and to help the government borrow efficiently.
This will discourage other investors who are willing to expose themselves to even a lower return, given that there is potential for capital gain.
This will again discourage foreign investment in this segment which has good potential.
I would also ask to remove withholding tax on interest/coupon income from government securities, as it disproportionately affects the ultimate owner of the security.
Md Shaheen Iqbal is DMD, Head of Treasury and Finance, Brac Bank Ltd Chairman, CFA Society Bangladesh