Stocks unmoved by budget changes
Stocks fell yesterday despite the government’s move to soften its harsh proposals for the capital market in the final budget for fiscal 2019-20, suggesting the investors are not satisfied with the changes.
The DSEX, the benchmark index of Dhaka Stock Exchange, shed 8.4 points to close at 5,421.62 points.
The parliament yesterday passed the budget that brought down the tax on retained earnings and reserves of listed companies to 10 percent from the proposed 15 percent.
The government has also relaxed conditions for holding on to retained earnings: a company has been allowed to keep 70 percent of its profits in a year as retained earnings.
If the company retains more than 70 percent, then it has to pay additional 10 percent tax on the amount it retains.
Initially, Finance Minister AHM Mustafa Kamal proposed 15 percent tax if a listed company’s retained earnings stand at more than 50 percent of its paid-up capital.
The government also brought down the tax to 10 percent for companies that reward their shareholders with more stock dividend than cash. Earlier, a 15 percent tax was proposed for companies that gave out stock dividend.
While the changes in the final budget are a relief, the provisions would still be taxing on the growth-led companies and financial institutions, said Mohammed Rahmat Pasha, managing director of UCB Capital.
“The budget still hampers capital formation,” said the chairman of a listed financial company requesting anonymity. The recent requirement to take the Bangladesh Securities and Exchange Commission’s approval before giving out stock dividend was good enough to rein in the tendency and promote cash dividend. “So the tax for stock dividend hand-out was not necessary.”
On the other hand, the government could announce a tax rebate for companies that pay more cash dividend, he added. Stock market stakeholders though hailed the amendments in the final budget.
“This is a win-win situation for both stock investors and entrepreneurs,” said Minhaz Mannan Emon, one of the directors of the DSE.
For instance, retail investors are likely to see more cash dividend in the incoming fiscal year, he added.
Shakil Rizvi, president of the DSE Brokers’ Association, echoed the same, saying the decisions are positive and investor-friendly. “Some companies have been providing stock dividend without any reason year after year. So the 10 percent tax would deter them,” he added.
The government proposed the tax on stock dividend keeping the retail investors’ interest in mind but it was tough on the entrepreneurs, said a top BSEC official asking not to be named. “But now that has been corrected.”
