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OPINION

Not the perfect shot in the arm

Shamsul Huq Zahid | Published: June 20, 2019 21:46:22


The government has been at the receiving end for years because of very dismal performance of the stock market, an important barometer of a country's economic health.

It has tried a few measures from time to time to buoy up the market. As expected, those being piecemeal in nature did not work.

In any market, indices do not go up constantly or take the opposite course in the same manner. The directions are dependent on many factors, economic or otherwise. Even politics, at times, determines the bahaviour of the market.

After the crash of the market in 2010, the government did come up with measurers that were basically aimed at helping small investors who almost deserted the market after burning their fingers. Yet the results were well short of expectation.

The main indices, on many occasions during the past nine years, recorded rise for days together notwithstanding the fact that the market players did not have any clue why the indices were going up. But the rise was not sustainable since it was, allegedly, a manipulated one. Under the circumstances, the general index of the country's main bourse, the Dhaka Stock Exchange (DSE), hovered between 5,300 points and 5,800 points in the recent years.

The government this time has come up with a couple of fiscal measures to give the market the much needed push. It has tried to address the issue of listed companies failing to declare the reasonable volume of cash dividends for their shareholders.

The new finance minister, who does know the stock market better than anyone in the present cabinet, in his maiden budget has proposed to impose 15 per cent tax each on stock dividend and retained earnings. He thought that the measures would force the listed companies to declare cash dividends much to the liking of the shareholders.

Unfortunately, the new measures have not gone down well either with the listed companies or with the securities regulator.  The response from the investors for whom the new measures are all about has not been anything notable either. The market shed nearly 44 points during the first trading session following the announcement of the budget on June 13 last.

The listed companies have estimated that, if the proposed measures are implemented, they would have to count Tk 108 billion in additional tax to the government. Those would also hurt expansion of companies and curtail the banks' move to expand their capital base, as required under the Basel III regulations developed by the International Bank of Settlements to promote stability in the international banking system.

More than anybody else, the Bangladesh Securities and Exchange Commission (BSEC) finds the proposals unacceptable. Its head during a meeting with the honchos of the two bourses said he would meet the finance minister and the National Board of Revenue (NBR) chairman to discuss the issue.

The BSEC chairman reportedly pointed out legal bar on imposing tax on capital raised through the issuance of bonus shares. Tax also cannot be imposed on retained earnings, which, actually, are tax-paid. 'It will be a matter of double taxation', Azam J Chowdhury, president of the Bangladesh publicly listed companies told this newspaper soon after the unveiling of the budget.  

It seems that the tax measures proposed in the budget to prop up the market might be reviewed prior to the adoption of the budget for the next fiscal.

In fact, even with those measures in place investors are unlikely to make a comeback to the market that has little to offer to them. The market has quite many inherent weaknesses that need to be address at the earliest. Market behaviour leaves one guessing about the presence of manipulators and absence of adequate regulatory oversight. The government's priority should be to address those issues.

zahidmar10@gmail.com

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