Stock brokers, merchant bankers may get tax cuts

The interim government may widen the gap in the corporate tax paid by listed and non-listed firms from 5 percentage points to 7.50 percentage points in order to attract companies with good performance records into going public.

The announcement may come in the proposed budget for fiscal year 2025–26, which is going to be placed tomorrow, confirmed sources from the Ministry of Finance.

Not only that, but the proposed budget might also bring some good news for stockbrokers and merchant banks.

In order to encourage trading and investment in the stock market, source advance tax on turnover is going to be dropped to 0.03 percent from the existing 0.05 percent.

On the other hand, there could be a proposal for the reduction of the corporate tax rate on merchant banks to 27.5 percent from the existing 37.5 percent.

The sources confirmed that the proposed budget is going to retain the 22.5 percent corporate tax rate on listed firms. If they can get all their income through banking channels, the rate would be 20 percent.

The corporate tax for non-listed firms would be 27.5 percent, and there would be no option for conditional reductions for fiscal years 2026–27 and 2027–28, according to the finance ministry sources.

In the current fiscal year, the rate is 27.5 percent, but it can be 25 percent on two conditions—if the firms handle incomes of over Tk 5 lakh and if all their spending is conducted through banking channels.

Stock market intermediaries, especially brokers, have been urging for a long time to reduce the brokerage tax rate.

However, the National Board of Revenue (NBR) increased it to 0.025 percent in 2009 from the previous rate of 0.015 percent.

It increased further to 0.05 percent in 2010 and then to 0.1 percent in 2011. Amid huge demand from brokers, it was reduced to 0.05 percent in October 2011.

Later, stockbrokers continuously urged the authorities to reduce the rate so that it was similar to that in other countries. However, the demand was not entertained.

This year, the DSE Brokers Association of Bangladesh (DBA) urged the NBR to reduce it to 0.025 percent.

If the government reduces it, it will help many stock brokerage firms to survive, as they are incurring losses, said Md Saiful Islam, president of the DBA.

Almost all the stockbrokers are incurring losses in their operations, but they have to pay the tax as it is charged on trading at source, he said.

The tax cut will mostly help non-institutional brokerage firms, he added.

Mazeda Khatun, president of the Bangladesh Merchant Bankers Association, said activities of merchant banks were totally different from conventional banks, but they were taxed in the same manner as banks.

Citing this, the BMBA urged the government to reduce the corporate tax imposed on them to 25 percent.

If the corporate tax is reduced for merchant banks, they can spend more on research and advocacy, and it will help bring a large number of good companies to the market, she said.

Inclusion of a higher number of good companies will ensure higher revenue earnings for the government, she added.

A stock market analyst said the steps from the government showed that it was trying to support the stock market.

In the case of bringing in good companies, the widening of the tax gap between listed and non-listed firms will work only when other types of policy support are available, he said.

For instance, the central bank can set a condition that any firm seeking to borrow over Tk 500 crore from banks must go public, he said.

There can be other conditions for listing, and a summation of all such steps can work towards bringing in good companies, he added.