The anxious wait of thousands of stock market investors is now over. The Finance Minister (FM) has said nothing with reference to the woes of investors. They are now disillusioned and forced to remain contented with the present bearish market. For long, the stock investors were demanding that corporate income tax for the listed companies be reduced further. But the Finance Minister, though seemed to have admitted the logic behind such reduction, did nothing to this effect in his budget proposals. The main argument for seeking a reduction in the corporate income tax for the listed companies was that such a reduction would provide the listed companies with additional distributable income, and the stock investors would receive more dividends from such distribution. To the stock investors, dividend yield is the prime consideration for the purchase of stocks. Any reduction in the corporate income tax for the listed companies would have helped them in terms of receiving a better dividend yield.
In addition, the stock market investors thought that a concession in the form of reduced tax for the listed companies would have attracted some fundamentally strong companies, which so long refused to come for stock exchange listing. It would have helped them in bringing about a change of mind. The unwilling companies would have undertaken a fresh cost-benefit analysis of stock market listing if reduced tax for such listing was offered. At present, there is a benefit of up to 10 per cent less corporate income tax for listing. But this benefit has failed to attract most of the good companies to the stock market till now. The unwilling companies found the concession not attractive enough, considering their accountability after listing. In this backdrop, stock investors and many other capital market experts had suggested that the tax on business profits be reduced further from their present level in case of listed companies.
Most of the Asian economies have lower corporate income tax than that of Bangladesh. The Asian average in this respect is 20 per cent, whereas Bangladesh's is 35 per cent. The matter should have attracted more of the FM's (Finance Minister) attention, especially at a time when the stock market was undergoing a prolonged bearish spell. The market lost over 600 points of its price index over a span of last few months. And there is no sign of recovery soon in the absence of any government-initiated incentives, which the investors thought would be on offer in the FM's budget proposals. The stock investors did not ask for infusion of any cash money to make this market vibrant again; what they asked for was a strong policy support.
The FM himself on various occasions had said that he would like to see the stock market as the main hub for raising long-term capital for businesses. But unfortunately when the time came to do something, he did nothing. A major part of the business's long term capital is still coming from the banks or the money market. The banking industry, taking short term deposits from their customers, is financing long term capital needs of the business sector. This is the very practice which is throwing this industry into a cycle of bad debt.
The economy is seeing more bad loans piling up in the system now than at any time in the past, and there is no sign of abatement of this burden anytime soon. The only and better alternative in place of raising long term capital from banks could have been sourcing from the capital market, as is the case in many other market economies. But here in Bangladesh, though the matter is admitted time and time again by policy makers, nothing is done at the end to make this market suitable for both investors and capital raisers. Many reforms and regulations were formulated to make the capital market transparent and its players accountable. But the reality is that, this market has not progressed much in terms of making more good stocks available to the investors.
In the absence of a dependable capital market, the savers in the economy are lining up for purchasing the government-owned savings certificates, which are offering more interests than long-term deposits in banks. But this type of easy availability of financial instruments with higher yields is distorting the whole financial market. Also, this is not a good way for managing the economy. A better way would have been making the capital market more vibrant and reliable, so that investors could invest more by maintaining a balance between the risks and returns.
Abu Ahmed is Professor of Economics at the University of Dhaka.
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