AHSAN HABIB

The finance minister said in his budget speech that the government wants to make the capital market vibrant. But a number of proposed tax changes could push institutional and retail investors away from shares and into safer investments such as government securities.

Under the proposed budget for fiscal year 2026-27, corporate investors would lose the preferential 20 percent tax rate on dividend income from shares and instead pay tax at their regular corporate rates.

For banks, that could mean paying 37.5 percent tax on dividend income instead of 20 percent.

The second proposed change affects individual investors. Retail investors currently receive a 15 percent tax rebate on stock market investments, but the budget proposes reducing that to 10 percent.

The maximum investment eligible for the rebate would also be lowered to Tk 7.5 lakh from the current Tk 10 lakh.

Moreover, income or discounts earned from zero-coupon bonds, a type of debt instrument purchased at a discount and redeemed at full value at maturity, are currently exempt from income tax for all investors. The FY27 budget proposes scrapping that exemption.

According to market analysts and asset managers, these proposed tax measures could send the wrong signal to investors at a time when the government is trying to revive the capital market.

“Both of the proposed tax measures for corporates and retail investors are negative for the capital market,” said Ali Imam, managing director and chief executive officer of Edge Asset Management.

However, he said the proposed tax on corporate dividend income would have a greater impact because institutional investors are already limited in the market. The additional tax would further discourage them from investing.

CORPORATE TAX CHANGES ON DIVIDEND INCOME

At present, corporate investors pay a 20 percent tax on dividend income earned from stock market investments. If the provision is abolished, they will instead pay tax according to their respective corporate tax rates.

For example, if Bank A invests in a listed company, Company B, and receives Tk 100 in cash dividends, the bank currently pays Tk 20 in tax on that dividend income, even if its corporate tax rate is 37.5 percent.