Why are directors of listed companies transferring shares as 'gift'?

• Tax waiver fuels surge in share gifts
• Sponsors transfer holdings to secure board seats
• Family succession drives intergenerational wealth transfers
• Major firms report large-scale share gifting

In recent times, there have been many examples of share transfers from directors or sponsors to their relatives in the form of gifts. So, a question arises: why are they gifting shares in such large amounts, and why so commonly nowadays?

Sponsors and directors usually gift shares to their relatives when they plan to bring them onto the company's board by ensuring at least 2 percent shareholding.

Sometimes, they do so to distribute their assets among family members.

Currently, directors are transferring shares more frequently as the National Board of Revenue (NBR) has recently waived tax on share transfers.

Through the Finance Act 2024, the NBR exempted tax on the transfer of properties, including shares, among spouses and between parents and children.

This year, it further widened the benefit by including a provision for non-taxation on the transfer of any tangible or intangible assets, including shares, among siblings.

So far, a large number of shares have been transferred by sponsors of Walton Hi-Tech Industries.

Sponsors and directors of Walton Hi-Tech Industries transferred around 11.72 crore shares to their spouses and siblings worth Tk 5,332 crore.

Two sponsor directors of Crown Cement gifted a total of 1.94 crore shares worth Tk 91 crore to their family members.

Recently, Mirza Yasser Abbas, a director of Dhaka Bank, announced his plan to transfer 3.13 crore shares of the private commercial lender to his mother, Afroza Abbas, a sponsor of the company, by way of gift.

"The transfer of gifts, including assets like shares, between blood-connected family members is entirely exempt from tax under the prevailing tax laws," said Snehasish Barua, managing director of SMAC Advisory Services Ltd.

"This applies to both the historical Gift Tax Act and the current Income Tax Act, establishing a unified and neutral position in the tax code."

This tax exemption is crucial because it facilitates the seamless transfer of family wealth without incurring a tax burden.

Specifically for shares, this enables ownership to remain within the blood-connected family, ensuring continuity in business or asset management across generations.

It provides a simple, tax-efficient mechanism for planned family succession and wealth preservation, he added.

In recent months, NCC Bank's sponsor Razia Hossain transferred 59.86 lakh shares to her spouse, Tofazzal Hossain.

Square Pharmaceuticals, the country's top drug company, informed that a total of 6.60 crore shares of Anita Chowdhury, a sponsor of the company, were transmitted to her legal heirs as per the Succession Certificate issued by the Honourable Court.

She also transferred her 58.43 lakh shares of Square Textile to her legal heirs.

Evince Textile's Anwar-Ul Alam Chowdhury, a sponsor director, transferred 18.37 lakh shares of the company to his daughter, Sanjana Shehnaz Chowdhury, by way of gift.

Shabnam Shehnaz Chowdhury, a sponsor director of the same company, also gifted 18.37 lakh shares of the company to her daughter, Sanjana Shehnaz Chowdhury.

Runner Automobiles' Md. Mozammel Hossain, a sponsor director, transferred 22.70 lakh shares of the company to his son, Mahamud Al Nahian, and 11.35 lakh shares to his daughter, Nowsheen Ishrat Promee, by way of gift.