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BSEC seeks tax on future reserves

Mohammad Mufazzal | Published: June 26, 2019 09:43:22 | Updated: June 26, 2019 19:32:45


Picture used for illustrative purpose only — Collected

The securities regulator has suggested imposing tax on the profit to be transferred as reserves from next year by the listed companies.

However, tax will be applicable only to companies that will fail to disburse a minimum amount of cash dividend.

The Bangladesh Securities and Exchange Commission (BSEC) proposal aims to encourage cash dividend disbursement.

A large number of companies are reportedly retaining profits without disbursing dividend to shareholders.

It has also urged the National Board of Revenue (NBR) to withdraw the proposal to levy a 15-per cent tax on stock dividend.

The proposals came in the wake of criticism from stakeholders over proposed budgetary measures like tax on stock dividend and retained earnings.

"The NBR has been informed of the BSEC proposals regarding tax on stock dividend and reserves of the listed companies," said a top BSEC official.

"The proposals will be submitted to the NBR formally in a couple of days," he told the FE.

"Primarily, the BSEC is not in favour of tax on reserves, yet if tax is imposed it must be on reserves from the next year."

The official said the BSEC has proposed tax, which will be defined by the NBR, on the reserves.

"A listed company need not pay any tax on the reserves from next year, if it disburses a minimum amount of cash dividend."

Asked about the minimum amount, the BSEC official said an "A' category company is required to disburse a minimum of 10 per cent dividend.

"In that case, the minimum amount of cash dividend must be above 10 per cent for an 'A' category company to avoid tax on reserves," he mentioned.

He said the regulator has proposed to withdraw a 15-per cent tax on stock dividend as a BSEC notification has already taken effect to contain unnecessary issuance of stock dividend.

Finance minister AHM Mustafa Kamal in his budget speech on June 13 proposed a 15-per cent tax on stock dividend to encourage cash dividend by listed companies.

This tax will be applicable to the listed companies only.

Mr Kamal also proposed a 15-per cent additional tax on retained earnings and reserves, if it exceeds 50 per cent of a company's paid-up capital.

Of the 317 listed companies, 209 have an aggregate amount of reserves worth above Tk 979.01 billion.

As proposed, the companies were supposed to pay an aggregate amount of tax worth above Tk 107.92 billion in addition to the amounts which exceed 50 per cent of their respective paid-up capital.

According to the BSEC proposal, the companies need not pay any tax on existing reserves.

But tax will be applicable to the amounts which will be retained from next year without recommending a minimum amount of cash dividend.

mufazzal.fe@gmail.com

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