Stock market analyst and chief executive officer (CEO) of AFC Capital Limited Mahbub H Mazumdar, discusses the proposed national budget for fiscal year 2020-21 and ways in which the country's capital market may be strengthened. Mahbub is also an executive committee member of the Bangladesh Merchant Bankers Association (BMBA).

What is your opinion about the proposed budget?

The proposed budget is commendable. Undisclosed money will be allowed to be invested in the mainstream economy so that the wheel of economy can keep moving. It is to be noted that we are not in favor of investing undisclosed money.

Whenever it becomes undisclosed money, necessary steps should be taken so that the government can prevent siphoning off the money. Focus should be given on addressing corruption strongly so that undisclosed money can be checked.

Regarding the health sector, Tk29,692 crore has been allocated to cope with the Covid-19 pandemic, which is very important and deserves praise.

However, there is no guideline to check irregularities of the fund's misuse. The budget is not finalized yet and we expect that there will be guidelines so that corruption and misuse of budget can be prevented.

Did the proposed budget reflect your demands for the stock market?

Many things that we anticipated were not proposed in the budget. Though undisclosed money can be invested in any sector subject to 10% tax, a three-year lock-in period condition has been imposed if undisclosed money is invested in the capital market. It is not expected and needs to be withdrawn. Imposing such conditions will not encourage undisclosed money to be invested in the capital market.

As the capital market is a productive sector, we expect withdrawal of the time bar, and undisclosed money should be allowed to be invested in capital subject to 5% tax to promote the capital market.

What initiatives are needed to strengthen the stock market now?

As per the Finance Act 2019, if stock dividend exceeds the cash dividend, the company will have to pay 10% tax on the total stock dividend, which is not good at all. It is the company and the shareholders of the company who will decide about the dividend based on reality. However, if the government wishes to encourage cash dividend, the government can offer tax incentives that will be beneficial for all. Imposing tax on stock dividends that exceed cash dividends is tantamount to penalizing the investors.

There should be better coordination among the regulators while taking decisions that affect our capital market. There was a directive by the Finance Ministry in 2012 for coordination among the regulators that was not complied with yet.

We have tax differentiation between listed and non-listed companies. However, there is no VAT differentiation between listed companies and non-listed companies. Listed companies are more transparent compared to non-listed companies and the former pays more VAT than the latter.

In the book-building method, eligible investors have discovered share prices of initial public offerings (IPOs). However, in practice we found that eligible investors failed to discover the fair price of the IPO.

We are an equity-based capital market. Time has come to have a vibrant bond market. Moreover, we need to get prepared to introduce other instruments such as options and derivatives along with equity and bond. We do not have the existence of a settlement company, which we need urgently.

Do you think the announced stimulus package will help businesses and the economy?

The finance minister proposed the economic recovery packages of Tk103,117 crore to deal with negative economic fallout due to Covid-19. However, we do not find any guidelines on how to implement the budget transparently and proper use of the fund by preventing corruption and misuse of fund allocations. It is high time we need to implement our budget effectively and efficiently.Report:Dhakatribune