Bringing multinationals to stock market

The government has of late shown its interest to bring multinational companies to the country to do business, including in the stock market. The Ministry of Finance recently held a meeting on this subject.
The finance ministry is the appropriate authority to sit with the unwilling multinationals and ask them to come to the stock market. Their listing with the stock market was made easier by the regulatory authority, Bangladesh Securities and Exchange Commission (BSEC) by requiring them to off-load their equity only up to 10 per cent. They can keep the rest with them. Also, the listing offers them a huge benefit in terms of lower corporate income tax, which is 10 per cent lower than the same for other non-listed companies. A 10 per cent lower corporate income tax has been offered to encourage the companies going public and also by taking into consideration the issue of helping the listed companies making more profit so that they could distribute more dividends among the investing public.
The 10 per cent tax incentive is not, however, to be applied to all types of listed companies. The BSEC here made some discriminations. For example, this tax difference is only 2.50 per cent for banks and there is no difference in the case of cigarette and tobacco companies. And in the case of mobile telephone companies, the corporate income tax difference is 5.0 per cent between listed and non-listed companies. Other than the above three types of companies, the other companies, if listed with the bourses, are required to pay 25 per cent as corporate income tax while the non-listed ones are to pay the same tax at the rate of 35 per cent. Bangladesh does not have a liberal tax regime when we see the rates of taxes on the companies' business and profit and also when we compare the same with those of other countries.
In many other countries with comparable economies, taxes on businesses are much lower. In fact, there is a subtle competition among the emerging economies as to which can offer how much lower tax benefits than the others. Lower tax rates are one of the benefits the foreign investors want to take into consideration while they decide to invest abroad.
The truth is that most of foreign companies doing business in Bangladesh are making hefty profit by taking advantage of absence of competition from their rivals and also by selling their brands. Naturally, local people will want a slice of the profits these companies are making. This is possible only if they can own these companies through shareholding no matter how small that shareholding is. But unfortunately, of  more than 50 multinationals doing good business in Bangladesh, only nine companies have offered that ownership to local investors through listing with the bourses. The rest did not care to go public or offer even the minimum required ownership under listing requirement which is 10 per cent of the paid-up capital. The Grameenphone was the last multinational company going public in 2009. Since then, no other multinational company has shown any interest or willingness to go public though many of them are listed with other bourses around the world.
What really prevent the unwilling multinational companies from going public in Bangladesh? We do not see any credible reason for such refusal excepting that voluntarily they are not willing to share any profit of business they are doing with Bangladeshis. Otherwise, why do the same companies are listed in Bombay, Bangkok and Karachi but steadfastly refuse to go public here in Bangladesh? The only reason we find is that Bangladesh never asked these companies with seriousness that will oblige them to listen and come to local stock market. Bangladesh's policymakers have the tools in their hands to compel the unwilling multinational companies to list with the local bourses.
The policymakers should study what brought the multinationals to the stock markets in other countries like India, Pakistan and Malaysia. The prior requirement for going public is to register a branch or a private limited company as a public limited one. That is, the foreign companies seeking to go public must convert those into local subsidiaries by registering them as the public limited companies. But the reality is that many foreign companies are doing business in Bangladesh by opening an office only. As a result, the government is not also receiving proper taxes. Local people can benefit from business of these multinationals if they can own a percentage of these as equity owners.
If multinationals go public, it will offer local people a much better option for their long-term investment plan. That will also beef up the strength of the bourses which are suffering from shortage of quality stocks. The government will at the same time receive more taxes from such companies because the business of these companies will be more open and transparent after listing. At present, members of the public do not know what a multinational company is making as profit and how much taxes it pays to the government. A company listed with bourses and another company in the same sector, if not listed, make a gulf of difference in terms of openness and transparency. A listed company is more transparent and open. The policymakers' function should be how to make people own the companies doing good business in Bangladesh.
The writer is Professor of Economics, University of Dhaka.
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