A little for stock investors

A corporate tax cut for listed banks, insurance companies and financial institutions and announcement of development measures for the bond market are the only achievements of stock investors from the budget announced for FY 2018-19.

In a pre-budget meeting, the Dhaka Stock Exchange (DSE) urged the National Board of Revenue to cut the tax rate on dividend income and free more of it from tax, from the existing Tk 25,000 to Tk 1 lakh.

Stocks investors and market analysts supported it, opining that Finance Minister AMA Muhith give hints to boost investors' confidence.

They said considering the present market scenario, exempting only Tk 25,000 of dividend income from tax was very discouraging for small investors.

The capital market is currently witnessing a serious liquidity crisis as well as bearish moves.

The DSEX, the benchmark index of the DSE, in the last six months knocked off 940.20 points and wiped out Tk 44,506 crore of investors' money.

"…the finance minister said nothing about the recent massive fall…it will send out a negative message to the market," said stockmarket analyst Professor Mohammad Musa.

To him, the achievements are nothing compared to what the capital market required. Dividend income is usually taxed at two levels – company and shareholder.

Faruq Ahmad Siddiqi, former chairman of the Bangladesh Securities and Exchange Commission (BSEC), said the government could at least give small investors an incentive on dividend income.

The incentive that Muhith proposed was a 2.5 percent cut in corporate tax for listed banks, insurance and financial institutions, bringing it to 37.5 percent from the existing 40 percent. Siddiqi said if listed banks have to pay less tax, their profits would soar and investors would be benefitted, but this would not have a massive impact on the market.

A 2.5 percent corporate tax cut is not a major decrease, he added.

"Other companies' corporate tax are also high, but the finance minister did not propose reducing those companies' tax," said Musa, also a member of the board of trustees of United International University.

Most of the listed companies are from other sectors, so this tax incentive will not have a big impact on the market, he added.

On the bond market development plan, Muhith announced that a Floating Rate Treasury Bond would be issued and that guidelines and directives had already been given out. He also said the government was contemplating introduction of Shariah-based securities.

Up until now, no Shariah-based securities have been introduced although Islamic banking makes up around 20 percent of the banking sector.

"It's a good attempt for the market," said Siddiqi.