ICB Capital Management seeks removal of double taxation

ICB Capital Management has proposed removing double taxation that erodes merchant banks' profits in the absence of the scope of adjusting source tax during the filing of tax returns.

The merchant bank in a letter to the Financial Institutions Division (FID) of the finance ministry and the National Board of Revenue (NBR) suggested that necessary changes be brought in the upcoming budget to relieve companies of the additional tax burden.

Chief Executive Officer (CEO) of ICB Capital Management Mazeda Khatun lamented that the Income Tax Act 2023 had scrapped the provision of source tax adjustment allowed by the Income Tax Act 1984.

Under the existing law, a merchant bank or brokerage firm pays Advance Income Tax (AIT) against capital gains, dividend income, interest income etc. But tax is again calculated on the company's aggregate income from different sources during the submission of tax returns.

With the capital market on a downward spiral, market intermediaries are struggling to earn enough to cover all expenses. The situation is dire for small entities that are required to pay hefty tax even after experiencing operating losses.

For example, a company has paid AIT tax on interest and dividend income of Tk 10 million before the earnings are added in the balance sheet. Finally, if the company earns a profit of Tk 20 million in total, the firm will again pay tax on the whole amount including the interest and dividend income.

The 1984 act would have allowed the company to deduct the source tax during the final tax settlement.

ICB Capital Management also suggested a reduction in corporate tax to 25 per cent from 37.50 per cent set for merchant banks.

It said companies would not be interested in going public unless there was a significant corporate tax rate gap between listed and non-listed companies.

The existing 5.0 per cent corporate tax gap, which was 7.50 per cent a year back, has been criticized by stakeholders.

ICB Capital Management also said a special tax incentive should be offered for corporate bonds for the sake of the development of the bond market.

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