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18 days ago

Merchant banks want tax revised to level of other market players

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Merchant banks pay tax at the same rate as banks despite playing different roles, and so they urge the National Board of Revenue to cut it down to what is applicable for market intermediaries.

A merchant bank is required to pay a 37.5 per cent corporate tax, equivalent to what is paid by listed banks, insurers, and non-bank financial institutions (NBFIs).

Merchant banks have been bearing heavy tax burden only because they have the word "bank" in their title, said Md. Moniruzzaman, managing director of Prime Bank Securities.

He insisted that the demand for a reduction in corporate tax for merchant banks is "very logical".

Merchant bankers last week placed a proposal tied to the matter before the revenue board.

The major operations of a scheduled bank include lending, deposit collection and investing in government securities to help meet domestic borrowing targets.

On the other hand, a registered fully-fledged merchant bank engages in corporate advisory services, portfolio management, underwriting IPO subscriptions, and issue management.

As an issue manager, merchant banks help issuers to raise capital through initial public offering (IPO), repeat public offer, investor's qualified offer, rights issue, and direct listing. They also disburse margin loans.

The current tax rate for other market operators, including stock brokers, is 27.5 per cent.

Asset management companies (AMCs) had paid tax at a rate of 15 per cent for nearly 12 years until 2023, owing to a tax waiver. They have recently sought a time extension for the waiver.

"Merchant bankers will not be able to ensure listing of good securities unless they are given scope of capacity building through corporate tax reduction," said Mazeda Khatun, president of the Bangladesh Merchant Bankers Association (BMBA),

Proper functioning of the country's capital market and operations of other market intermediaries depend on listing of good securities, she added.

Merchant bankers say they play a pivotal role in facilitating the supply side of the capital market. But a 10 per cent higher tax rate compared to other market intermediaries is not rational.

For FY24, the tax rate for publicly-traded banks, insurers, and financial institutions was slashed from 42.5 per cent to 37.5 per cent/40 per cent, but there was no change for merchant banks.

The number of merchant banks is 67. Leading merchant banks include ICB Capital Management, IDLC Investments, and BRAC EPL Investment.

Of the other market intermediaries, the Dhaka Stock Exchange (DSE) proposed a reduction of tax at source to 0.02 per cent from the existing 0.05 per cent paid by TREC (trading right entitlement certificate) holders on the value of securities transacted.

The premier bourse has also sought tax exemption for dividend income worth Tk 50,000.

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