Listed companies to take higher tax burden

Many publicly traded companies in Bangladesh are set to face higher corporate tax despite complying with existing regulations as a new law squeezes fiscal incentives, which may prove to be disservice to efforts for deepening the capital market.

Analysts say this effectively brings them on a par with non-listed firms due to changes newly introduced in the 'Finance Ordinance 2025'.

The new budgetary measures also scrap the tax incentives for ensuring cashless-transition compliance for most categories of corporate tax, except for companies that are already listed and have offloaded more than 10 per cent of their shares.

And a one-person company will face 27.5-percent tax in a rise from 22.5 per cent and 20 per cent for those that maintain cashless-transition compliance.

Beginning with the assessment years 2026-2027 and 2027-2028, listed companies that have not offloaded 10 per cent or less amount of shares of their paid-up capital through Initial Public Offerings (IPO) will be subject to a corporate-tax rate of 27.5 per cent.

Only companies that have floated more than 10 per cent of their shares through IPOs will be eligible for the reduced rate of 20 per cent, and that too subject to a condition that all income must be received through banking channels.

However, the companies having already offloaded minimum 10 per cent or less of their shares following BESC rules would not qualify for getting listed companies' benefits despite complying with the revised thresholds following regulatory instructions, according the Finance Ordinance 2025.

The ordinance, crafted by the post-uprising interim government, allows the reduced tax benefit only for a one-time IPO floatation. This means companies cannot claim the pared-down taxing multiple times by offloading shares in phases.

Industry-insiders caution that the withdrawal of the mandatory cashless-transaction condition could potentially encourage informal financial activities.

Moreover, market analysts fear, publicly listed firms now facing tighter scrutiny and diminishing tax incentives could prove to be disservice to longstanding government effort to deepen the country's capital market. This could discourage firms from going public and may reduce investor appetite in the absence of distinct fiscal advantages for listed entities.

Experts mention that companies were listed following the Bangladesh Securities and Exchange Commission (BSEC) rules for tax incentives. If the government imposes a requirement for companies to offer more than 10 per cent of their shares through IPO at one go, this should apply to new companies.

However, the NBR could include the conditions of Repeat Public Offering (RPO) and Follow-on Public Offer (FPO) to meet the share threshold for eligibility to receive tax benefits.

An NBR senior official, who is familiar with this issue, anonymously says the government has decided to relax the mandatory cashless-transition condition as many of companies are not able to comply with. They increase the tax rate considering the revenue realisation. "Tax incentives for one-person company did not match with global standards," the tax official adds.

"Publicly traded companies with less than 10per cent of their shares issued through an IPO will face an additional 7.5-percent tax in the future. Such a law is discriminatory," says Snehasish Barua, a tax analyst and managing director of SMAC Advisory Services Ltd.

"If they are required to pay an extra 2.5 per cent in the 2025-2026 tax year, followed by an additional 7.5 per cent in both the 2026-2027 and 2027-2028 tax years, the tax burden on these companies becomes excessive.

"A company can typically conduct an IPO only once. While they could pursue a Rights Public Offering (RPO) to issue more shares on the stock market, the current income tax law lacks provisions for this, thereby subjecting these companies to discrimination," he adds.

M Masrur Reaz, chairman at the Policy Exchange of Bangladesh, notes that such frequent policy changes will impact local and global investors' confidence, and it will further increase their concern.

"Everyone wants to see a predictable and consistent policy before any investment," the policy analyst says.

The government should revise tax rate and conditions on share offloading through IPO, he suggests, adding that a favourable tax policy is needed for listed companies, failing which capital market will see a setback further instead of making it vibrant.

Tax cut for digital financial transactions was a move to bring good governance and increase formal economy, he says, adding that the government may reconsider that as it was an incentive for preventing corruption.

In a recent meet over the national budget 2025-26, FICCI said the budget imposed a "discriminatory" tax rate of 27.5 per cent for listed companies having less than 10-percent shares in IPO.

Saiful Islam, President of the DSE Brokers Association of Bangladesh (DBA), stated that the condition requiring companies to float more than 10 per cent of their shares through an IPO is a positive move for new companies as it allows them to share their profits with the public.

However, he argues that applying this condition to companies that were listed 50 years ago is "absolutely absurd". He questions how such long-listed companies could reasonably comply with this requirement.

He emphasises that the policy should be fair to all and that the government should revise this condition for existing companies and provide them with options to gradually increase their public shareholding.

Companies not entitled for listed benefits

According to DSE website, multinational Berger Paints has offloaded less than 10-percent share during IPO. Berger is on the way to meet the threshold condition within this year.

After the new budget proposals Berger managing director Rupali Chowdhury expressed her disappointments upon learning this condition. She said they had decided to offload shares based on the NBR's previous rule and BSEC also assured them of the tax benefit.

Like Berger, Walton Hi-Tech Industries initially offloaded less than 1.0 per cent of its shares when it went public in 2020. The Bangladesh Securities and Exchange Commission (BSEC) later mandated that listed companies ensure at least 10-percent free float. Following the regulatory changes the company increased the number of publicly tradable shares to nearly 39 per cent. However, there is controversy over the enhanced free-floated shares as Walton sponsor-directors transferred to their family members.

newsmanjasi@gmail.com