In a bid to create a vibrant Sukuk market and encourage investors, Bangladesh Bank (BB) has proposed to provide tax exemption benefits to the Sukuk investors.
In a proposal to the National Board of Revenue (NBR), Bangladesh Bank recently proposed to fully exempt income tax on the income from Islamic financial certificate for the individual Sukuk investors.It also urged the revenue authority to count the investment as tax rebatable investment like treasury bonds investment.
In the same letter, the central bank has also requested the NBR to withdraw 5 per cent tax at source on the profit from Sukuk to attract local and foreign investors.
A Sukuk is an Islamic financial certificate, similar to a treasury bond and structured to generate returns in compliance with Islamic finance principles.
The Shariah-based bond is expected to help the government manage its deficit financing at a time when it is struggling to collect revenues due to the economic disruption caused by the corona pandemic.
Bangladesh Bank issued the country’s first-ever shariah-compliant bond ‘Sukuk’ in December last year.
The government launched this shariah-compliant bond to collect Tk 80 billion for the project ‘safe drinking water supply across the country. The central bank arranged the first auction to collect Tk 40 billion.It is believed that the instruments will attract small investors as they can invest as low as Tk 10,000 in the Islamic instruments in contrast to Tk 1 lakh in the T-bills and bonds.
The Sukuk will mature in five years, and the government looks to implement the safe water supply project by June 30, 2025.
The central bank thinks that 5 per cent tax at source on the buy and sell of Sukuk certificates may create pressure over carrying the actual tax and it would discourage the investors to transact the Sukuk certificate.
As a result, easy exchange of Sukuk certificate would be hampered in the secondary market, said the central bank.
On the tax benefit for Sukuk investors, Bangladesh Bank also mentioned the example of Malaysia, Turkey and Hong Kong.
Due to its convenience and popularity, Sukuk is witnessing a higher growth rate worldwide since its inception.
Long-term global Sukuk issuance surged by 49 per cent, reaching $109 billion in 2020, compared to $73 billion in 2019.