Bourses praise budget, indices fall though

Both bourses yesterday welcomed the measures proposed in the national budget but the market responded negatively on the first working day since the finance minister unveiled his financial plan on Thursday.

The DSEX, the benchmark index of Dhaka Stock Exchange (DSE), dropped 43.47 points, or 0.79 percent, to close at nearly 5,431. The CSCX, the key index of Chittagong Stock Exchange (CSE), fell nearly 84.15 points, or 0.82 percent, to 10,073.

Both the stock exchanges held media briefings in their respective offices in Dhaka to give their reaction to the proposed budget for 2019-20. “The budget has been the most stock market-friendly ever,” said Rakibur Rahman, a director of the DSE.

Finance Minister AHM Mustafa Kamal has doubled the tax-free dividend income limit to Tk 50,000 and created a scope for listed, financially sound companies to buy the sick ones.

The double taxation on dividend income of foreign companies has been removed.

Kamal also proposed additional tax on stock dividend and retained earnings, a move both the DSE and the CSE welcomed.

“It should be implemented for at least a few years even if it creates problems for some companies,” Rakibur said.

Prof Abul Hashem, chairman of the Dhaka bourse, welcomed the proposed tax, saying many companies have deprived investors by giving only stock dividend year after year. “The DSE will not send any recommendation seeking withdrawal of the proposal although some are differing,” he said.

KAM Majedur Rahman, managing director of the DSE, however, said some good initiatives have been proposed in the budget and the tax on retained earnings deserves further discussion to find whether it would be positive for the market.

Minhaz Mannan Emon, a director of the bourse, said imposing tax on stock dividend and retained earnings was not the right way to encourage cash dividend.

“Moreover, it may affect the capital formation of well performing companies. So, we should not create any hurdles for capital formation and the proposal should be reconsidered,” he said.

Capital formation is a term used to describe the net capital accumulation.

Talking to reporters after the briefing, DSE Director Sharif Ataur Rahman backed Emon, saying, “It is illogical to impose the tax on stock dividend and retained earnings.”

Both bourses also urged the government to allow black money into the stock market, considering the recent slump.

 “The government should offer the opportunity to invest black money into the stock market to revive the market. Black money can particularly be allowed to be invested in bonds,” said Rahman of the DSE. 

“It may be a good incentive for the market if the black money is allowed,” Md Ghulam Faruque, acting managing director of the CSE.

The DSEX has lost more than 500 points in the last six months while the CSCX gave up 934 points.

Majedur also called for removing the stamp duty on bond issuance and widening the corporate tax gap between listed and non-listed companies.