Budget and the Capital Market

Finance minister AHM Mustafa Kamal placed the proposed national budget before Jatiya Sangsad on June 9. The government has set a target GDP growth rate of 6.78 per cent in the budget. The budget has come at a time when the government when they are facing some serious problems.

Bangladesh has to overcome the post-pandemic impact and manage the problems created due to the Russian invasion of Ukraine. Inflation and local currency depreciation are major problems for our economy. Like other interest groups, the capital market intermediaries had some expectations from the budget such as reduction of corporate tax, removal of the provision of double taxation, the opportunity for black money to invest in the capital market, etc.

The government kept its positive commitment to our business community by reducing the corporate tax rate. Similar to previous years, they have reduced the 2.5 per cent tax rate for all companies, and it will encourage investment and create job opportunities. The experts may criticize that difference between listed and non-listed companies’ tax rates remain the same. It would be better if the government reduced tax rates more for listed companies compared to non-listed companies.

But from the secondary market point of view, two important issues must be mentioned. First, due to the decreasing tax rate of listed companies, earnings per share will be increased significantly, and it should positively impact the secondary market in the coming days. Second, suppose the government increases the difference in tax rate between listed and non-listed companies. In that case, one argument is that more companies will come to the market and raise their funds.

Another argument is that if a company wants to do business by maintaining good corporate governance, it should come to the market in the current situation, especially for two reasons. First, they are getting a 2.5 per cent tax advantage, and second, when a company is listed, it is very familiar to the two million investors and their friends and family members. So the brand value of the listed company will increase. The government is not allowing investing black money in the capital market from 1st July 2023.

Bangladesh’s capital market has seen significant reforms in the last ten years, especially during our present commission to ensure transparency and governance. Moreover, BSEC is an ‘A’ category member of the International Organization of Securities Commissions (IOSCO). So we cannot morally support investing black money in the capital market.

Moreover, in the last few years, we observed that a very insignificant amount of black money had been invested in the capital market. We expect that it will not negatively impact our capital market.

The finance minister has proposed tax cuts on export-oriented products to boost local production.  Bangladesh government plans to patronize sustainability and introduce only a 10 per cent tax rate for all green industries which are exporting goods and services and a 12 percent tax rate for all general industries exporting goods and services.

A recent report by the World Bank has mentioned that Bangladesh has made a robust economic recovery from the Covid-19 pandemic. We expect more shortly when Bangladesh’s economy starts to get dividends from Padma Bridge. We had many expectations from the budget, but if we look at it rationally, the government has tried to facilitate the capital market despite the fact we are passing through a very tough time,

The writer is Faculty BASM