Press Release
| While highlighting his points he said, we were eagerly waiting for some bold decisions in the budget to improve the overall situation of the market. However the budget virtually contained nothing as regard to the capital market. Chittagong Stock Exchange provided pre-budget proposals prior to the budget announcement, however, very unfortunately nothing came up in the proposed budget. |  |
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CSE President Mr. MKM Mohiuddin is presiding over the
Post Budget Press Conference organised by the CSE on 24th June, 2006.
First Vice President Mr. Nasiruddin Ahmed Chowdhury, Vice President Mr.
AQI Chowdhury, Directors Mr. ASM Shahidullah, Mr. Bijan Chakroborty are
also seen in the picture with the President
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CSE President while recalling on consecutive of deficiency in the earlier budget, he said deficit budget might destabilize the capital market in many ways. The deficit of Tk. 171 billion would very likely to force the government to rely on internal borrowing from the money market, despite Tk.120 billion has been planned to be externally financed. The stock market will be the indirect sufferer of the instability of the money market. Instead of high reliance on the banking sector, we strongly propose that the government collect the money by using marketable bonds and offloading government shares in the capital market.
Chittagong Stock Exchange thinks the following measures are very important which will bring discipline in the market and will help grow the market as well:
1. Tax rebate on individual dividend income
Tax on individual dividend incomes are already paid by the companies as net profit after tax. They also retain 10% at source as dividend distribution tax. If they are taxed again in the hand of individuals it is tantamount to double taxation.
2. Tax rebate for listed companies
A publicly traded company for declaration of dividend at 20% or more is entitled to have a tax rebate of 10% of the income tax. But in some business sectors it is hard to make such profit to declare dividend at 20% or more. To rationalize the tax rate, we the following rates may be cinsidered:
| Companies declaring | Rate of Rebate |
| 10% Dividend | 10% of the amount of Tax |
| 15% Dividend | 15% of the amount of Tax |
| 20% or more dividend | 20% of the amount of Tax |
3. Deduction of tax at source
Deduction of tax at source from the turnover value of the stockbrokers are made at .015% currently, which we think should not be more than .01% as we suggested last year.
4. Tax rebate on Bond rate
Recently launched bond in the secondary market by the government is a good product for them who like to avert risks and also for various funds. Initially there were lots of enthusiasm about this product but only for the higher tax rates bond trade is not being popular among all levels of investors. So the existing tax rate of 10% should be completely abolished.
5. Investment allowance for income tax assessment
Currently for an individual 15% rebate is allowed on 20% of his/her total income or actual investment whichever is lower. We suggested to raise the rebate from 15% to 25% and total investment allowance from 20% to 25% of the total income if the investment is made in securities both from primary and secondary markets. This would encourage individuals to invest more in the share market.
6. Off-loading of government and multinational companies
To expand the capital market by infusing good shares, govt. stakes in the multinational companies and also the shares of 100% government owned profitable companies should be off loaded for public participation through the stock exchange.
All existing multinational and foreign companies operating in
7. High bank interest drives the capital away from the market
Recent increase of bank interest rates on FDR and other instruments has put a very detrimental effect on the share market channeling a big share of investment from the capital market to the banking institutions. Bangladesh bank should have thought it before for the sake of the share market. There should always be a check and balance in taking such policies so that neither the banking sector nor the capital market suffers.
8. BTTB Multi-metering system
Stock brokers/dealers should be kept outside of the BTTB multi-metering system in line with Internet Service Providers (ISP’s). At present stockbrokers need to log into the exchange server for online trading by using dial-up system through BTTB telephone connection, which cost them huge amount of money at the end of the month.
9. Investment by the fund managers
Investment by fund managers in our market is very necessary for the growth of the market. Present settlement system is not suitable for them to trade in our country because of the time zone difference and the political instability as well. If there is DVP (Delivery vs Payment) settlement system with flexible settlement period for foreign funds they will be attracted to our market.
10. Accounting the unaccounted money
Government allowed unaccounted money to become accounted at 7% tax if they are spent in buying house, land or car. If the government even thinks that use of these money should be in only one sector, this should the capital market. This is the only place that this money is going to be used in productive way, as it will form equity in the companies contributing directly in productivity.
11. Special Incentives on VAT and Import duty
Special incentives regarding VAT and import duty could be given to the publicly traded companies helping them to increase their earnings and declare more dividends.
The rate of inflation in the FY ‘06 stood at 7.0 percent. Interest payments against internal and external debts stand at Tk.76.37 billion. The proposed national budget for fiscal 2006-07 overwhelmingly depends on domestic borrowings. Such borrowings by the government would put under pressure a number of sectors like power, apparel, banking and energy and lead to increase inflation with a price hike in the essential commodities. The budget will make life tougher for the poor and common people who already have been sandwiched by the pressure of abnormally high commodity prices.
We can clearly foresee that the government borrowings from the domestic sources, especially the banking sources, would continue to remain high, indicating that the growing dependence on bank borrowing to meet deficit financing coupled with the existing contractionary monetary policy would shrink the funds for the private sector. The liquidity crunch has already led to an unhealthy competition among the private commercial banks to attract depositors by raising deposit rates up to 13 per cent. We are worried that low availability of funds and high interest rate would obviously cast a negative impact on the investment climate especially in the Capital Market.
Government needs to understand that infrastructure, power, energy and telecommunication sectors are very crucial for the growth of the capital market. So framing policies needs to be driven by the fact that FDI along with those thrust sector could substantially boost up the capital market. We strongly request the government to consider our above proposals for the benefit of the capital market and the betterment of the economy of the country.
Among the CSE Directors First Vice President Mr. Nasiruddin Ahmed Chowdhury, Mr. AQI Chowdhury OBE, Mr. A.S.M. Nayeem FCA, Mr. Abu Sayed Md. Shahidullah, Mr. Tareq Kamal, Mr. Bijan Chakroborty, Engr. Ali Ahmed, Mr. Amir Humayun Mahmud Chowdhury were present in the press conference.
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AKM Shahroze Alam
Deputy Manager
Corporate Development