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The National Board of Revenue, or NBR, has reached a consensus over offering a string of tax incentives to promote long-term debt market in Bangladesh.
The incentives include withdrawal of upfront tax on debt securities, tax at source on trading stage of such tools and waiver of discriminatory tax measure on zero-coupon bonds, officials say.
The board has agreed to lift advance tax, which is deducted at source on debt securities. It would also consider collecting tax on lump sum amount of commission instead of imposing levies on per transaction during trading of debt securities in the secondary market.
The NBR also agreed to review the existing discriminatory tax measure on zero-coupon bonds.
Currently, tax is imposed on investment in zero-coupon bonds by financial institutions, but other organisations and individuals enjoy exemptions.
Officials said the simplification of tax measures is under active consideration of the income tax wing of the board.
Tax officials and other parties agreed to relax the measures in a meeting held on February 24 last.
The income tax policy wing organised the meeting on 'Promoting long term debt market in Bangladesh through tax incentive and simplification: A critical analysis of business process."
The wing holds another meeting today (Tuesday) with the World Bank, or WB.
Representatives from financial institutions, Bangladesh Bank, World Bank and officials of the financial institution division (FID) under the ministry of finance are expected to attend the meeting at the NBR.
A senior central bank official, who attended the previous meeting, said the existing tax measure constrains making the bond market vibrant.
"We have found the NBR positive about offering the incentives for developing a bond market for ensuring the long-term financing in Bangladesh," he said.
Tax officials said the board had earlier declined to waive the upfront tax for the sake of protecting revenue.
Analysing the business process, the tax wing has now found that there are differences between the bond and equity market.
"We have revisited the proposals made by the World Bank and the private sector regarding the upfront tax," said a senior tax official.
Currently, the NBR collects upfront tax at a rate of 5.0 per cent on profit, coupon or interest of debt securities or bond as per Income Tax ordinance, 1984, section 51.
There is also .05 per cent tax at source on per transaction amount of secondary market trading as per income tax law. It is applicable to all types of securities.
Recently, the Bangladesh Securities and Exchange Commission, or BSEC, placed a proposal to impose a lump sum amount of commission on debt securities.
The NBR would focus on developing a vibrant secondary bond market while removing discrimination to ensure a level-playing field in the bond market, he said.
In the meeting, the interest groups suggested reviewing the tax benefit on zero-coupon bond.
Arif Khan, chief executive officer and managing director of the IDLC Finance Limited, said a coordinated effort of the relevant entities is needed to develop the country's bond market.
Financial institutions are not investing in bond owing to tax burden, he said.
He hailed the NBR's move to promote the long-term debt market.
NBR officials said the representatives of the tax policy wing should be co-opted in the committee to help develop the country's capital market.
In the meeting the NBR high-ups requested all interest groups such as the securities regulator, the central bank and multilateral lending agencies to back the initiative.