The draft Income Tax Bill 2023 has delivered bad news for big investors of mutual funds though it has retained all benefits for stock investors, including the capital gains tax.
Drafted in Bangla, the bill, which was placed in parliament on June 8 by Finance Minister AHM Mustafa Kamal, will replace the existing Income Tax Ordinance 1984.
The new law proposed that investments up to Tk 5 lakh in any government securities, units of mutual funds, and exchange-traded funds will get a tax rebate.
Previously, any amount of investment in mutual funds qualified for the tax rebate. The rebate on investments in any listed securities has remained unlimited.
As a result, investors will be discouraged to park funds in mutual funds since they will not be eligible for the rebate if the investment crosses Tk 5 lakh, said a top official of an asset management company.
“People will be encouraged to invest in stocks. But the government should have encouraged people to invest in mutual funds.”
The investment in open-ended mutual funds, which are not listed, will mainly be impacted now, he added.
The total number of mutual funds in Bangladesh is 119. Of them, 83 are open-ended and the rest 36 are closed-end or listed.
Mutual funds pool money from investors to channel them into securities such as stocks and bonds. Depending on the profits earned, investors are paid their shares as dividends.
An NBR official said that the tax administration has found that large investors are investing in mutual fund units.
“We don’t want to offer tax rebates to rich investors. But the rebate has remained in place for smaller investors because they need it.”
He said the Income Tax Ordinance 1984 attached some conditions for investors to qualify for the rebate. “But the new law is simple and friendly to small investors.”
The proposed law says the statutory regulatory orders that don’t contradict the bill will remain in effect. This means the capital gains tax, which was waived by an SRO in 2015, will remain in force.
The tax waiver on cash dividend incomes will also continue.
The income of mutual funds, alternative investment funds, exchange-traded funds and real estate investment trusts will remain outside of the purview of tax, according to the proposed law.