Bangladesh: Sukuk investors may be offered fiscal benefits

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Dhaka

The government is likely to offer fiscal benefits in order to attract investment in Sukuk, a bond-like instrument used in Islamic finance.

The existing gain tax at a rate of 4.0 per cent might be waived on transfer of asset to the Special Purpose Vehicle (SPV) in the Finance Bill-2021, officials said.

Finance Minister AHM Mustafa Kamal may propose the tax waiver while placing the national budget for fiscal year 2021-22 on June 03.

A Sukuk is an Islamic financial certificate, akin to a treasury bond, which complies with the shariah laws.

A senior Bangladesh Bank (BB) official said the move would help attract investment in Sukuk.

Due to higher taxes, investors will have to pay higher at the time of leasing assets to the SPV, although it is not like sale of other properties.

“Sukuk is a real asset-backed security and its issuing company will get back the asset after expiry of the leasing time or end of the term,” he said.

Industry insiders said existing taxes on asset transfers are one of the main obstacles to creating a vibrant Sukuk market in the corporate sector here.

Sukuk represents the claim on revenues generated from an underlying asset as well as the ownership of that said asset while abiding by sharia laws.

The product requires the ownership of an asset covered by Sukuk to be repeatedly transferred from one party to another.

“Imposition of gain tax on registration increases the cost of Sukuk,” the BB official said. Registration of assets, transferred or leased to a SPV, should be free of cost since they are not its end user, investors said.

In the income tax law, transferring underlying assets to the SPVs are considered as normal asset transfers.

Industry insiders said applicable rate of taxes or tax incidence stood up to 9.5 percent for Sukuk while its secured annual return to the investors is 9.0 percent.

According to tax officials, the government is likely to offer tax benefit to the asset-backed security following request from stakeholders like Bangladesh Securities and Exchange Commission, and Beximco Pharmaceuticals Ltd.

SEC chairman Shibli Rubayat Ul Islam said the stock market regulator has proposed the NBR to offer tax benefit to Sukuk similar to Zero coupon bond.—The Financial Express