BB bats for sukuk investors
The central bank has proposed the National Board of Revenue (NBR) to consider the profits earned by individual investors from their investment in the Islamic bond as tax-free income.
The banking regulator in addition has suggested the NBR withdraw the 5 % source tax on the investment in the Shariah-compliant bond, referred to as sukuk.
The Bangladesh Lender wrote a letter to the NBR on March 4, requesting it to take measures in order that clients get inspired to acquire Sukuk certificates in the secondary bond market.
A sukuk can be an Islamic financial certificate, similar to a treasury bond, which complies with Shariah laws.
The Bangladesh Lender issued a sukuk on December 28, the first of its kind in Bangladesh, to raise Tk 8,000 crore for the implementation of a nationwide safe water supply project.
The government primarily raised 50 per cent of the targeted amount, and the others Tk 4,000 crore will be mobilised in May.
Thirty-seven banks, including eight Islamic loan providers and two individual shareholders, took part in the first auction.
Investors will love a profit of 4.69 per cent on the investment in the Islamic bond.
The sukuk will mature in five years, and the federal government appears to implement the safe water supply project by June 30, 2025.
Investors now pay taxes annually against the money from traditional treasury charges and bonds. Furthermore, they face a 5 % source tax when earnings will be distributed to them periodically.
The NBR calculates the quantity of annual tax for an individual or institution after deducting the foundation tax, a central bank official said.
The taxes are discouraging persons from parking their money in the Shariah-compliant relationship.
These have created a roadblock to purchasing and offering the sukuk in the secondary relationship market, the state said.
If a person or institutional investor sells the sukuk certificate in the midway of getting the profit, they have to pay the foundation tax according to rules. Similarly, the individual or institution that intends to get the tool must face the same amount of source tax.
An agreement is needed between your buyer and vendor to split the source tax proportionately to avoid double-taxation.
Profits will be paid to buyers of the sukuk on a half-yearly basis.
From this backdrop, investors today face complexities regarding buying and selling of the Islamic certificate, the BB official said.
The NBR imposed the foundation tax on the investors of T-bills and bonds at the start of the current fiscal year.
The central bank has recently sent two letters to the NBR, suggesting it withdraw the foundation tax on the profits made on the investment in T-bills and bonds.
The NBR hasn't responded yet.
The central bank has urged the NBR to take care of Sukuk like three additional bonds the federal government has introduced for expatriate Bangladeshis.
The Bangladeshis buying the US Dollar Premium Bond, the US Dollar Investment Relationship, and the Wage Earners Advancement Bond usually do not face any tax.
"The NBR should follow the same solution to get sukuk attractive," the central lender said.
Countries including Malaysia, Pakistan and Turkey experience offered tax rebate to the traders of sukuk by drawing up another tax policy, a central lender letter said.
The initiative taken by the countries has made sukuk attractive, the BB official said.
