B Mirror Report: The Bangladesh Bank has assured the Dhaka Stock Exchange (DSE) that it will revise the existing requirement mandating foreign investors to obtain a tax certificate after every executed share sale, a move aimed at making the country’s equity market more attractive to overseas investors.

Under the current system, foreign portfolio investors cannot freely reinvest proceeds from share sales until a tax certificate is issued. Market participants say this creates delays in fund utilisation and leaves capital idle in custodial accounts without earning interest.

For example, when a foreign investor sells shares worth Tk 1 million or more, the local custodian bank such as HSBC holds the proceeds until the relevant tax certificate is submitted. During this period, reinvestment is effectively blocked.

DSE officials argue that such a requirement is uncommon in other frontier and emerging markets. In countries like India and Pakistan, tax certificates are typically required only when funds are repatriated, not after each transaction.

Following discussions between DSE representatives and the Bangladesh Bank governor last week, the central bank has requested a formal proposal outlining how the system can be simplified. The DSE is expected to submit its recommendations this week, suggesting that tax certification be required only at the point of fund repatriation.

Market operators believe the existing complexity has discouraged global fund managers from allocating larger portfolios to Bangladesh. Foreign investors generally distribute annual allocations across multiple markets, and Bangladesh often receives a comparatively small share.

According to former brokerage executive Ahsanur Rahman, Bangladesh attracts significantly lower foreign investment than peer markets such as Vietnam, largely due to operational friction and limited ease of entry and exit.

He added that foreign portfolio investment in Bangladesh’s stock market fell by around 70% over the past five years, reaching $914.58 million by December last year, amid prolonged bearish market conditions.

DSE officials argue that streamlining the tax certificate process would reduce administrative delays and transaction costs, while potentially encouraging more frequent reinvestment. They also maintain that the change would not reduce government tax revenue, but could instead improve inflows through increased market activity.

A significant portion of foreign portfolio investment in Bangladesh originates from institutional investors in the UK, US, and Norway, often routed through financial hubs such as Singapore, Hong Kong, and Dubai.