Md. Ashraf Hossain :
Thanks to government for realising basic problem of capital market. Finance Minister rightly stated that listed companies had been depriving shareholders by transferring major portion of net profit as retain earning or reserve and distributing a negligible profit as dividend to shareholders years’ together. Some has been issuing stock dividend or bonus share but cash dividend without proper reason. As a result, shareholders are losing interest to stay in capital market. They are selling their shares in through way price. Capital market is experiencing continuous price fall.
To develop capital market the proposed budget 2019-20 has declared a few important measures to address the basic problems. To encourage shareholders Tk 50,000/ dividend income was declared as income tax free income instead of Tk 25,000/. It will encourage small share investors.
Directors in general are reluctant to distribute optimum profit as cash dividend and keep major portion in reserve or retain earning. To discourage keeping huge profit in reserve additional 15% tax has proposed to impose on retain earning over 50% of paid up capital. It is fact that a few companies kept four-five times amount of paid up capital as retain earning depriving shareholders. If 15% additional tax is imposed huge amount will be drain out from the companies as there is huge amount of retain earning in the reserve accounts of listed companies. Hue and cry has been started by directors of those listed companies to withdraw it. Instated of imposing 15% additional tax, provision could be made that when retain earning of a listed company exceeds paid up capital amount, full net income of the company is to be distributed among the shareholders as cash dividend or combination of cash and stock dividend but in a financial year, stock dividend must not exceed cash dividend.
Proposed budget has made provision to impose 15% tax on issuance of stock dividend to discourage giving stock as dividend. There are listed companies which have been issuing stock dividend without rational. The practice has reducing the share price abnormally low in stock exchange. Those companies seldom give cash dividend. A listed company may require increasing paid up capital for expansion business. The 15% tax will discourage them. This tax may be withdrawn. At the same time provision may be made that in a financial year a listed company could not issue stock dividend more than cash dividend. It will stop unnecessary nuisance of stock dividend. Additional tax on reserve and issuance of stock may discourage companies to get listed in Stock Exchanges.
The changes in proposed budget will contribute to vibrant Bangladesh capital market in the years to come.
(Md. Ashraf Hossain, Company Secretary, Power Grid Company of Bangladesh Ltd, Dhaka)
