Recently, I have explored various articles, interviews, and roundtable discussions that delve into the current state of the mutual fund industry in Bangladesh. Insights from knowledgeable professionals and industry veterans have highlighted several challenges and offered constructive suggestions for improving the overall landscape.
I would like to humbly share my thoughts on the challenges posed by the imposition of stamp duty during the mutual fund registration process.
To launch a mutual fund, it must be established as a “Trust” and registered under the Registration Act of 1908. According to the Stamp Act of 1899, any registration conducted at the Land Registry Office incurs a stamp duty. Specifically, Clause 64(A) of Schedule 1 mandates a 2% duty based on the deed’s proposed fund size/value at the time of registration.
However, this obligation was waived for mutual funds and collective investment schemes via SRO #162-AIN/2015/08.00.0000.040.22.006.12, issued by the Internal Resources Division of the Finance Ministry on 11 June 2015.
Recently, with the Finance Act of 2022, the Bangladesh government updated Schedule 1 of the Stamp Act. The revision now imposes a 0.1% stamp duty on mutual fund registrations, capping the maximum amount at Tk1,000,000.
Following this update, sub-registers at the Land Registry Office started to interpret the change as a revocation of the previous SRO exemption, compelling newly launched mutual funds to pay this additional duty.
Since the last couple of years, we have witnessed several funds entering into operation only marginally fulfilling the 40% minimum requirement or specifically Tk10 crore (40% of Tk25 crore). A mutual fund having an initial target size of Tk25 crore but is launched by meeting the 40% minimum requirement (Tk10 crore) would effectively incur a stamp duty of 1% (0.1% of Tk25 crore = Tk250,000, which is equivalent to 1% of Tk10 crore) during the registration phase. This is a significant levy that could impact the fund’s operational viability and performance. As a result, funds that have been launched lately were compelled to pay additional duty and are subject to competitive disadvantage (I’m not naming out the individual funds, on purpose). Not to mention, the speed money that we all had to inject into the land registry offices, is still required and even has become an objective reality, unlike an assumed reality, to get the job done.
Strategically speaking, this is not a very big avenue (at least not for now) for the government to generate non-tax revenue, but the burden on individual funds is disproportionately heavy, particularly for those launched at the minimum threshold. Therefore, my curious mind asks, why impose stamp duty on mutual fund registration? Given that the mutual fund industry in Bangladesh is still in its infancy, I urge the government to reconsider this decision. Our industry leaders should advocate for a reassessment of these additional burdens during the fund launch phase, fostering an environment that promotes growth and sustainability.
The author is the chief operating officer at Midland Bank Asset Management Company