Stock brokers and shareholders of demutualised Dhaka Stock Exchange (DSE) sought gain tax waiver for investing the Tk947 crore they made out of divesting the one-fourth stake of DSE to the Chinese strategic investors.
The prime bourse of the country would be boosted with the injection of fresh fund if the15 per cent capital gain tax is waived under a policy support scheme of the government, they said.
Due to lack of any such policy support DSE sets to lose potential investment of Tk947 crore from the sale of 25% shares to Chinese Consortium, the investors opined.
Talking to Dhaka Tribune, a good number of shareholders of DSE said if the government waives the capital gain tax, they will make the full investment of the amount received from the sale of shares to Chinese investors in the capital market.
They also think the policy decision would increase the cash inflow into the market as well as help the government to earn more tax from the bourse.
However, the government is yet to show its willingness towards the waiver, it was learnt.
Recently, in a meeting with the Finance Minister AMA Muhith, leaders of DSE Brokers Association (DBA) sought their demand on gain tax waiver is met on condition that the Tk 947 crore will be invested in the market for two years.
The DBA leaders in the meeting argued that it would increase the cash flow in the market which will ultimately help the government to earn from the trading tax.
“Despite strong appeal, there is no such fiscal support so far from the government, which can draw the shareholder attention to invest the money into the stock market,” Ahmed Rashid Lali, a former DBA president told the Dhaka Tribune.
As there is no incentive or policy support, a little portion of Tk 947 might be invested in the stock market, Lali hoped.
The divestment of 25 per cent share of DSE was mandatory for the DSE management as the Demutualisation Scheme 2013stipulates. The Tk 947 crore will be distributed to 237 DSE shareholders.
As per the Share Purchase Agreement (SPA), the Chinese Consortium has transacted the money to DSE on Monday after the Bangladesh Bank gave a go-ahead.
With the money disbursed the Chinese Consortium became the strategic partner of the DSE from Monday.
“Apparently, it may seem that the government would lose revenue by waiving capital gain tax. But in long term, the government will earn more from the stock market, if Tk947 crore is invested in the capital market as it will increase transaction volume,” DSE Brokers Association (DBA) president Mostaque Ahmed Sadeque told the Dhaka Tribune.
Expected outcome from the partnership
Since the Chinese consortium has vast experience in operating one of the largest stock exchanges in the world, local stakeholders are expecting a good operation module, better governance and technological improvement in the prime bourse of the country.
“The Consortium will now propose a representative in the board of directors of the Dhaka Stock Exchange,” Shakil Rizvi, Managing Director of Shakil Rizvi Stock Ltd told the Dhaka Tribune.
On top of that, the market will see more foreign investment as the involvement of Chinese consortium will rebuild investors’ confidence on stock markets, he said.
However, the outcome from the partnership would not come overnight as it is a long-term process.
In becoming strategic partner, the Chinese Consortium offered to develop SME market, product diversification and technology upgradation. It also offered technical support of Tk307 crore.
Prominent economist AB Mirza Azizul Islam said: “The Shanghai Stock Exchange and the Shenzhen Stock Exchange have good reputations for their well-regulated operations. As a partner, they will have much to offer to the DSE to improve its operations.”
It is assumed the governance of the DSE will further improve with the development, he added.
Mirza Azizul also noted that the partnership will attract investors, both foreign and domestic, while boost the confidence among existing investors. He hoped it would also help develop new products to woo investors.
"Good governance is a crying need for stock market in ensuring investors' rights and to curb bad practices," Abu Ahmed, honorary professor at Dhaka University’s Economics Department, told the Dhaka Tribune.
Since, the Chinese stock exchanges have culture of good governance and accountability to investors, they will concentrate on it, when it will take position in the board of directors of DSE, said Ahmed, also a stock market analyst.
Rumor over investment in the stock market
There is perception among the stock investors that money received from the Chinese consortium would be invested in the stock market.
However, there is no legal framework in making investment in the stock market. But one can make investment if he or she wants voluntarily, analysts said.
“As a shareholder, I will make investment a larger portion of my earnings in the stock market. But it is not mandatory for a shareholder to invest in the stock market,” said Shakil Rizvi.
