Budgetary measures fail to prop up stock marketAhmed Shawki
Most of the government’s budgetary measures, including the facility for legalizing undisclosed money, failed to boost the country’s ailing capital market as the general index of Dhaka bourse shed 1,359.59 points from July 2011 till date.
In a desperate effort to stabilise the stock market, the government in the last budget allowed investment of undisclosed money in stock market without any question by paying a 10 per cent tax.
Later, the government also restored 10 per cent income tax rebate for the individual investors and waived capital gain tax for foreign investors and non-resident Bangladeshis.
All the moves boosted the market for a short while but failed to sustain stability of the market because of contradictory remarks and actions by the government high-ups, spreading of rumours amid lack of surveillance by the regulators and influential stakeholders’ apathy towards the market.
The confusion over legalisation of undisclosed money in stocks following remarks of the finance minister Abul Maal Abdul Muhith after the passage of the budget on June 29 and subsequent clarifications by National Board of Revenue kept the market volatile for four to five months.
Muhith had said that other state agencies could question the source of undisclosed money invested in stock market while NBR till January this year claimed that no question would be asked about the money source used for stock investment.
On 15 January this year, according to the latest statutory regulatory order of the NBR, the government would allow only legally earned yet untaxed money for stock investment which is subject to 10 per cent tax.
In 2009-10, a total of Tk 922 crore was legalised and only Tk 121 crore was realised as income tax.
In his budget speech for FY 2011-12, AMA Muhith had announced some other stock market development measures most of which remained unimplemented.
Muhith had said that the government would take steps to develop surveillance software for the Securities and Exchange Commission to curb market manipulation.
SEC officials said the project, jointly funded by the Asian Development Bank, is still stuck in the paper works.
They said lack of efficient manpower and bureaucratic tangles made the commission’s work procedure slow and ineffective.
The government announced to frame a Financial Reporting Act to maintain stability in the capital market and also establish a Financial Reporting Council to oversee the audit and accounting standards.
The government also announced to establish a separate Clearing and Settlement Company to ease the stock exchange transactions.
The demutualization of the stock exchanges was also announced to be a priority of the government last year. But the required law for the purpose is yet to be drafted which delayed the process, said officials of Dhaka and Chittagong bourses.
But none of these pledges has been implemented in the 11 month of the current fiscal year.
After repeated crash in the market that resulted in a slump of DSE general index to around 4,800 points in November 2011 from 8,900 points in December 2010 and numerous street-protests by the small scale investors, prime minister Sheikh Hasina in November last year asked the SEC to work out a package to minimise the losses incurred by the investors as a result of the market crash.
The commission, in line with the prime minister’s order, announced a stock market stimulus package containing short-, mid-, and long-term measures and also formed a six-member committee to recommend a compensation scheme.
Most of the measures facilitated the institutional investors, banks and merchant banks, as their capital market exposure calculation was relaxed and they got more time to provision their bad loans in the capital market.
According to a proposal of the compensation scheme committee, AMA Muhith on March 4 announced that 50 per cent of last year’s margin loan interest would be waived and a 20 per cent quota in IPOs would be allotted to small-scale investors.
No merchant bank or brokerage house, except the state-run Investment Corporation of Bangladesh, waived interests on margin loans given to its clients after two months since the government’s order in this regard.
‘The money legalizing facility historically proved ineffective in our country,’ former SEC chairman Faruk Ahmed Siddiqi told New Age.
He said that the investment culture in the country’s stock market does not fit with the undisclosed money legalizing facility.
‘Our investors do not have such orientation to investing undisclosed money in the stock market and keep it for two years. So ultimately such provision became ineffective,’ he explained.
He said that other development projects including surveillance software for the SEC, proposed Financial Reporting Act and establishment of a separate Clearing and Settlement Company were urgently needed for better operation of the market.
‘These all are very important issues for the better operation of the market. And as the market was going through a crisis, such developments should have been on the government’s priority list,’ he said.
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