Stock market failed to get a boost in the last couple of years despite receiving ‘enough’ financial incentives, including the opportunity to attract undisclosed money, from the national budget.
The budgetary incentives were given only on political ground, not for practical reason, analysts think. But the stakeholders have expressed different views, saying the incentives have taken the market to a new height.
Some budgetary policy measures, including demutualisation law, setting up special tribunal for settling stock-market related cases, taken in the outgoing budget will bring fruitful results in the long run, they said.
“There is no use of financial incentives for the stock market,” said Faruq Ahmad Siddiqi, former chairman of Bangladesh Securities and Exchange Commission.
He said the existing incentives are enough, but the policy to allow whitening black money should not be continued. “This is totally useless as it, given on political consideration, brings no benefit for the stock market,” he said. “Such incentives never boost the market tempo. Why should it be continued?”
On current stock market volatility ahead of the national budget to be presented on June 6, he said there is no relation between market volatility and the budget. “It’s just a manipulative way to make some gains out of it.”
However, he said, the general perception is that the new budget may be a bit tough as it is being announced in a difficult time when the election is approaching and economy is down.
In the outgoing budget, the government exempted tax on dividend income of up to Tk5,000, reduced income tax of merchant banks by 5% and announced 10% tax rebate facility for companies which would offload 20% shares of their paid up capital through initial public offerings (IPOs).
The market is enjoying facility of whitening black money or illegally earned money over the last two consecutive fiscal years.
The parliament already passed a bill bringing changes to the Securities and Exchange Ordinance 1969, empowering the government to set up special tribunals to settle the stock market related cases, and demutualistaion Act that is expected to help separate the bourses’ managements from ownerships.
“Decision on financial incentives may hastily be taken to appease somebody,” said Wali-ul- Maroof Matin, former chief executive of Chittagong Stock Exchange (CSE).
The budgetary benefits created some optimism among over enthusiastic investors for a brief period but failed to ignite investors’ sentiment in the long run because it lacked economic plan and contained political elements, he said.
But the market will see much development in days to come after bringing in some reforms in the budget, said Matin, also chairman and managing director at Alliance Capital Asset Management Limited.
The Dhaka and Chittagong stock exchanges opposed the view saying financial incentives have helped the market expand at faster pace over the years.
CSE president Al-Maruf Khan said the market size has increased to US$40bn from $1bn over the last 10 years because of incentives given in the budget. “This is a great achievement for the stock market,” he said.
Lower corporate tax being enjoyed by the listed companies has helped reducing the liquidity pressure of the banking sector, as the companies raise fund from the market instead of borrowing from bank to finance their business projects, he said.
“The most important thing is that there was no announcement of capital gain tax in the budget, which attracted a large number of investors over the years,” Khan said.
A series of reform that has already been brought in the budget has taken the market to a new arena, he also said. “And I hope policy reform measures in the budget will continue to make the market more transparent and vibrant.”
For the upcoming budget, both the bourses – CSE and DSE – proposed slashing the corporate tax for listed banks, insurance and non-bank financial institutions to 37.5% from the existing 42.5% and reduction of tax at source on brokerage 0.015% from 0.05%.
The bourses recommended a new scheme which they think would allow a 50% rebate on income tax for investors with outlays of up to Tk100,000 in the market on excuse that it would help improve the depth of the capital market and increase the flow of savings to the market.
It also recommended cutting taxes on capital gains for companies, who currently pay 10% on incomes from share transactions. A reduction in the rate to 5% on shares held for one to two years, 2% for two to three years and 0% for above three years was another proposal, which the prime bourse said such a tax structure based on the duration of the shares held would encourage institutional investors to adopt a long-term investment.
However, CSE proposed for 7.5% on shares held for one to two years, 5% for two to three years two to three years and, like the DSE, 0% for shares held longer than three years. It also demanded increasing the ceiling of tax-free income from stock investment from the existing Tk5,000 to Tk50,000.
It proposed to take budgetary steps to remove the tax exemption on share premiums, continue tax rebate for stock investment and keep scope for investment of untaxed money in the stock market.
