Amid a continued fall in share prices, many investors have lost interest in the stock market after failing to cope with mounting losses.
The benchmark index of the Dhaka Stock Exchange, DSEX, has dipped to a five-year low, while daily turnover fell to alarming levels.
Following the political changeover through the July uprising, investors were hopeful about a revival of the capital market. But the reality is in contrast as within a month, the market once again fell to a prolonged slump.
In protest, frustrated investors took to the streets, while some were hopeful that the budget will come up with some recovery measures for the stock market, including incentives for investors. But the proposed budget has disappointed them, offering little to directly benefit investors.
There are some initiatives in the proposed budget to improve the capital market. These include increasing the corporate tax gap between listed and non-listed companies, reducing transaction tax for brokerage houses, and lowering the corporate tax for merchant banks. The initiatives will largely benefit institutions, not individual investors.
Before the budget, stock exchanges had urged the government to withdraw taxes on dividends and capital gains. It remained unresponded in the proposed budget.
Finance adviser Salehuddin Ahmed noted that companies will be eligible for a maximum 7.5 per cent corporate tax reduction from fiscal year 2025–26, after getting listed in the stock market. The corporate tax rate for listed companies will be 20 per cent, while it will be 27.5 per cent for non-listed companies.
However, if non-listed companies comply with certain conditions, including receiving all incomes through banks and maintaining proper transaction records for amounts over Tk 500,000 and annual totals over Tk 3.6 million, the effective gap in tax rates will be reduced to 5 per cent.
The source tax on brokerage house transactions has been slightly reduced. Currently, there is a tax of Tk 0.05 on every transaction worth Tk 100, and the proposed budget reduced this rate to Tk 0.03. Besides, an initiative has been taken to reduce the corporate tax on merchant banks in the capital market from 37.5 per cent to 27.5 per cent.
Insiders said increasing the tax gap between listed and non-listed firms aims at attracting good companies to the market. The proposed gap is 7.5 per cent, but the actual benefit is only 5 per cent in general.
The Bangladesh Securities and Exchange Commission (BSEC) recommended a 10 per cent gap to make listing more appealing. But the finance adviser did not accept it fully. It raises a question whether the good companies will find the current incentives attractive enough to go public, particularly considering the added compliance costs and regulations they would face.
The initiatives to reform the finance sector after the political changeover in August are advancing at a sluggish pace. Therefore, there has been little improvement in the market.
The budget also failed to meet investor expectations. Now all eyes are on the post-budget period to see whether the proposed measures can revive investor confidence and breathe new life into the struggling stock market.