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Merchant banks are not financial institutions like banks and insurance companies but their corporate tax rate is 37.5 per cent which is disappointing. If it is decreased to 25 per cent, the merchant banks can play an effective role in the capital market, Md Sayadur Rahman, president of the Bangladesh Merchant Bankers Association and also managing director of EBL Securities Limited, told The Business Post’s Anisur Rahman in an exclusive interview.
How do you assess the current stock market situation?
The condition of our country’s capital market has been negative for a long time. A number of reasons including the Russia-Ukraine war, the country’s overall economic situation, and rumour are triggering panic in the market.
The reviews on the capital market of our country are mostly negative. As a result, the market is not able to turn around despite various initiatives taken by the capital market regulatory body Bangladesh Securities and Exchange Commission.
What is your observation about floor prices?
Due to the Russia-Ukraine war and various other reasons, the regulatory body imposed the floor price to protect the general investors, although it is not positive for the market. The floor price is not bad as a temporary measure, but it will not be fruitful for the capital market in the long run as it disrupts the liquidity flow.
What is your opinion about investing undisclosed money in capital market?
Investment of undisclosed money in the capital market should be allowed. If it is allowed for at least one year, imposing a 5 per cent tax, the liquidity flow of the market will increase and the country’s economy will enjoy its benefits. Otherwise, the undisclosed money can be misused.
What do you think the corporate tax rate of merchant banks should be?
The tax rate of banks, insurance companies, and financial institutions listed in the capital market is 37.5 per cent and the tax rate of unlisted banks and insurance companies is 40 per cent. Merchant banks are not financial institutions like banks and insurance companies but their tax rate is 37.5 per cent which is disappointing.
The slowdown of the capital market due to the Covid-19 pandemic and the Russia-Ukraine war is making it impossible for most of the merchant banks to manage their operating costs. In this situation, if their corporate tax rate is decreased to 25 per cent, the merchant banks will be able to play an effective role in the capital market.
As per the rules, a merchant bank must submit at least one IPO (initial public offering) issuance proposal to the regulatory body every two years. But in reality, IPOs in the capital market are not that much. What is your opinion in this regard?
Submission of IPO issuance proposal is mandatory not for the merchant banks only. Instead of collecting money from the capital market, entrepreneurs are more interested in taking bank loans, because a businessman can easily raise the required capital by taking a loan from the bank.
On the other hand, getting IPO approval is a lengthy process and the difference in existing tax rates between listed and unlisted companies is only 7.5 per cent. I think the tax rate difference between listed and unlisted companies should be 15 per cent.
If the difference in tax rates between listed and unlisted companies can be reduced, good-quality companies can be listed in the capital market.
The current reality is that being listed in the capital market is mandatory for banks, insurance companies, and financial institutions, but there is no such legal obligation for other companies. Policy support is needed to bring those companies to the capital market.
What do you think about tax on dividends paid by companies?
Dividends are provided after paying the corporate tax. An advance tax of 10-15 per cent is charged while the companies pay the dividends.
Subsequently, the recipient is taxed again as per the rate applicable to him. As a result, to avoid the tax on the dividend, the general investors sell their shares before the record date, instead of receiving the dividend. This trend of the investors ultimately makes the stock market unstable.
Therefore, I think that the tax on dividends paid by companies should be withdrawn to make the capital market more vibrant and thriving.
What are your suggestions to the investors?
In the current market situation, investors should invest for the long term in stocks with good fundamentals. Investing in shares of good companies will keep the investment of the investors safe.
