Bangladesh waives value added tax for sukuk

Published 16 Sep,2021 via The Financial Express - The National Board of Revenue (NBR) has offered tax benefit to popularise Sukuk, an Islamic financial instrument.

The waiver has been offered in a bid to make the local bond market vibrant.

The Value Added Tax (VAT) wing of the board has waived taxes on sale and purchase of assets between originator and Special Purpose Vehicle (SPV) of Sukuk.

VAT applicable to rent of assets or leasing of assets between them has also been waived through issuing a Statutory Regulatory Order (SRO).

The VAT wing issued the SRO, dated September 7, 2021, offering the waiver against issuance of Sukuk.

However, the NBR has imposed a condition to avail the waiver.

The issuer of Sukuk will have to obtain No Objection Certificate (NOC) from Bangladesh Bank, if needed from Bangladesh Securities and Exchange Commission (BSEC), for formation of SPV.

Talking to the FE, a senior VAT official said the rate of VAT ranging from 7.5 per cent to 15 per cent has been waived for popularising the bond.

"The demand from the BB and the BSEC was to waive the VAT," he said.

In the budget for current Fiscal Year, the government has offered income tax exemption on Sukuk.

It has waived gain tax at a rate of 4.0 per cent on transfer of asset to the SPV.

Sukuk is akin to a treasury bond, which complies with the shariah laws.

The market size of Islamic banks is an estimated 35 per cent of the total banking sector.

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.

The VAT official said BB, Beximco Pharmaceuticals Ltd and other future issuer of Sukuk would get benefit of the waiver.

Last April, Beximco as a maiden Bangladeshi company decided to issue the first-ever private-sector Sukuk 'Al Istisna' for Tk 30 billion.

It is the largest-ever issuance of securities in the private sector of Bangladesh.

Industry insiders said retired person won't be able to carry out their family expenses with 1.0-2.0 per cent return that they get currently from deposits in Islamic bank.

Islamic banks cannot buy traditional bonds like their conventional counterparts since bonds are interest-based.

In December 2020, the government issued the first-ever Tk 80-billion Sukuk for a safe water supply project.

Sovereign Sukuk is the main contributor of the global sukuk market.

According to the International Monetary Fund (IMF) Sukuk database, the amount of sovereign Sukuk reached $606.3 billion, or around 55 per cent of Sukuk issued globally, by the end of 2018.

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