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DSE’s 5 Budget Recommendations for Market Stability & Investor Benefits

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DSE's 5 Budget Recommendations for Market Stability & Investor Benefits

To ensure the stability of the capital market and benefit investors, the Dhaka Stock Exchange (DSE) has put forward five key proposals for the upcoming 2024-2025 national budget.

On Tuesday, May 28, DSE Chairman Dr. Hafiz Mohammad Hasan Babu presented these budget recommendations during a pre-budget press conference held at the Dhaka Club.

Key Proposals
Among the notable recommendations are:

Final Settlement of Withholding Tax on Dividends: The DSE suggests treating the withholding tax on dividends for individual investors as a final settlement.
Reduction in Corporate Tax for Listed Companies: To encourage more companies to get listed, the DSE proposes lowering the corporate tax rate for listed companies.
Tax Exemption on Bond Interest Income: The DSE recommends that interest income from bonds be made tax-exempt.
No New Taxes on Capital Gains from Securities Transactions: The DSE advises against imposing new taxes on capital gains from securities transactions on the stock exchange.
Proposed Corporate Tax Adjustments

In its budget proposal, the DSE advocates for reducing the tax rate for all listed companies and increasing the gap between the tax rates of listed and non-listed companies to 12.5%, up from the current 7.5%.

Encouraging Listings and Ensuring Fair Taxation
The DSE believes that the gap between the corporate tax rates of listed and non-listed companies should be increased from 7.5% to either 10% or 12.5%. This can be achieved by reducing the tax rate for publicly traded companies while increasing the rate for non-publicly traded companies. Such measures are expected to encourage more multinational and financially stable local companies to list on the exchange. The DSE strongly believes that such unprecedented steps will support the Ministry of Finance’s long-standing efforts to promote government share listings.

Despite their relatively small numbers, listed companies make significant contributions to direct income tax revenue due to their adherence to legal and regulatory frameworks. The DSE is confident that, under the effective guidance of the Bangladesh Securities and Exchange Commission (BSEC) and stringent monitoring by the stock exchange, corporate income tax revenue will continue to grow even if the tax rate for listed companies is reduced.

Reducing Securities Transaction Tax
Currently, a 0.05% tax is collected on the value of securities transactions conducted through stock exchange members, with the exchange’s income being 0.025%, or half of the collected tax. This rate is significantly higher compared to neighboring countries. Therefore, the DSE recommends reducing this tax rate to align with international best practices.

The Dhaka Stock Exchange (DSE) has proposed reducing the source tax on transaction value from 0.05% to 0.020%, a rate previously set at 0.015%.

Dividend Income Tax Adjustments
DSE recommends treating withholding tax on dividend income as a final tax liability, similar to the treatment of profits from savings certificates. Although the first fifty thousand takas of dividend income is no longer exempt under the Income Tax Act, 2023, it was previously allowed under the Sixth Schedule, Part A, Paragraph 11A of the Income Tax Ordinance, 1984.

Encouraging Small Investors
Given the current state of the capital market, DSE suggests exempting the first fifty thousand takas of dividend income from taxable income. This move is aimed at attracting small investors to the capital market, thereby increasing overall market transactions and tax revenue, which will contribute to sustainable market development.

Impact of Global Events
DSE argues that the global impacts of the COVID-19 pandemic and the Ukraine-Russia war have left Bangladesh’s capital market in a precarious situation, leading to severe liquidity issues. Addressing the proposed tax changes would boost investor confidence and help alleviate the market’s liquidity crisis. Since dividends are paid from post-tax profits, the withholding tax on dividends effectively results in double or even triple taxation for subsidiary companies. Treating dividend tax as a final tax would encourage more investment in the capital market, supporting various industrial financing efforts and enhancing overall market activity, profitability, and dividend distribution, ultimately increasing tax revenue through the capital market.

Tax Exemption on Bond Interest
DSE proposes that interest or income from any corporate bond listed on any stock exchange board, similar to zero-coupon bonds, should be exempt from tax for both issuers and investors. Alternatively, all types of bonds and asset-backed securities, including Sukuk, could be exempted from Section 106 of the Income Tax Act, 2023.

Developing a Robust Bond Market
DSE argues that the small size of the current corporate bond market creates limitations in both the capital and money markets. A vibrant bond market could benefit the economy in various ways. Tax exemptions for all types of bonds would encourage the development of a dynamic bond market, reducing reliance on bank loans for industrial financing.

Capital Gains Tax on Securities Transactions
DSE has proposed not imposing new taxes on capital gains from transactions in listed securities. Considering the overall economic development of the country, DSE requests that no new capital gains tax be imposed on securities transactions of listed companies and that the existing tax rates outlined in SRO No-196-Law/Income Tax/2015 be reduced.

These proposals aim to stimulate the capital market, attract more investors, and ensure sustainable economic growth.

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Weekly U.S. Stock Market Reports Diverse Performance

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Reviewing the U.S. Stock Markets, the Nasdaq Composite, recorded a decent hike of 555 points, reaching a closing value of 17,688 points by the end of the week. Similarly, the S&P 500 index showed a positive trend, gaining 85 point to settle at 5,431 points. Meanwhile, DJIA Index experienced a notable drop, losing 209 points during the week and concluding at 38,589 points after a week of gaining.

In contrast, Russell 3000 Index saw a gain in week performance, with a slight hike of 40 points to reach 3,077 points by the end of the week.

Moving to Russell 2000 Index, demonstrated a notable drop of 20 point, ending the week at 2,006 points.

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Weekly European Stocks Shows Negative Result

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European stock

In the Outgoing week, the European stock market displayed a massive losing performance.

Here is the data on the weekly performance of the European Stock Market, The STOXX Europe 600 index, which is considered a leading benchmark for the European market and covers approximately 90 percent of the market capitalization across 17 countries, reported a drop of 12.5 points to close at 511.05.

The United Kingdom’s FTSE 100, one of the most widely followed indices in Europe, also showed a significant drop, losing 99 points or finishing the session at 8,146.

In Germany, the DAX 30 index, lost by 555 points to reach 18,002, while France’s CAC 498 decreased by 9 points to stop at 7,503 at the end of the trading day.

Italy’s FTSE MIB, which covers the top 40 stocks traded on the Milan Stock Exchange, decreased by 1,995 points to 32,665. However, Spain’s IBEX 35, added by 412 points, to close at 10,992.

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South Asian Stocks Reports Gaining Performance in Recent Week

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A review of South Asian stock markets shows that India’s Bombay Stock Exchange (BSE) index BSE Sensex has added 299 points during the week. At the end of the week, the index stood at 76,992 points. On the other hand, the Nifty-50 index of the country’s National Stock Exchange gained by 175 points last week. At the end of the week, the index stood at 23,465 points.

Pakistan Stock Exchange Index ‘KSE 100’, shed 2,926 points last week. After a week of losing, the index settled at 76,742 points.

On the other hand, The Sri Lankan stock market index adds, and the Colombo Stock Exchange index ‘ASPI’ increased by 208 points in a week. After a week the index settled at 12,314 points.

Bhutan’s stock market index ‘BSI’ added 68 points hence the index stood at 1,515 points throughout the whole week. Nepal’s ‘NEPSE’ gain 35 points, therefore the index stands at 2,112 points.

Hence Dhaka Stock Exchange: The benchmark index ‘DSEX’ dropped by 119.51 points or 2.28 percent, in the outgoing week. At the end of the week, the index stands at 5,117 points.

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