Brokerages facing operating losses for years due to persistent volatility: DBA

Infographic: TBS

Brokerage firms have been incurring operating losses for years, primarily due to the volatile capital market and persistently low investor confidence, said Saiful Islam, president of the DSE Brokers Association (DBA).

"If operating income alone is considered, all brokerage firms have been incurring losses for years, mainly because of prolonged market downturn," he said at a press conference today (12 April).

Dhaka Stock Exchange (DSE) shareholder directors Minhaz Mannan Emon and Shakil Rizvi were also present at the event, where DBA leaders highlighted the severity of their financial struggles.

Saiful Islam said, "Over the past 15 years, a series of misguided policies have severely damaged the capital market. Investor confidence has been completely eroded. As a result, the number of BO (beneficiary owner) accounts has dropped to 1.2 million, down from 3.3 million in 2010."

"With the alarming decline in investor participation, daily turnover has remained stuck between Tk300 to 400 crore. This volume isn't even sufficient for the top 10 brokerage firms to sustain operations — let alone the smaller ones, whose condition is even worse," he added.

According to DBA leaders, despite enduring years of financial losses, brokerage firms continue to pay income tax at high rates, pushing their effective tax burden up to nearly 60%.

At present, the National Board of Revenue (NBR) collects a 0.05% tax at the source on the total value of securities transactions conducted by brokerage firms, which amounts to nearly 25% of their gross income. Back in 2005, under the Finance Act, this rate was only 0.015%.

Brokerages call for lower source tax

According to the DBA, the current tax rate is significantly higher compared to neighbouring and regional markets. For instance, the turnover tax is 0.01% in India, 0.00065% in Pakistan, 0.0075% in Singapore, and 0.00565% in Hong Kong.

As daily trading volumes have declined drastically in recent years, brokerage firms' incomes have also plummeted. Still, these firms continue to pay taxes, despite earning no profit, they said, urging the government to align Bangladesh's tax rate with regional standards and reduce the source tax on securities transactions from the current 0.05% to 0.02%.

Md Saifuddin, senior vice president of the DBA, said, "Nowhere else in the world is there such an unbalanced tax structure. The government has a right to collect taxes on profit, but when a business is facing losses, it should not be forced to pay income tax. This is sheer oppression."

Mohammed Nasir Uddin Chowdhury, shareholder director of the Chittagong Stock Exchange, said, "Taxes are being collected from brokerage houses in such a way that it feels like we're in business solely to pay the government. This is weakening our financial capacity, leaving us unable to invest in market development."

Minhaz Mannan Emon, shareholder director of the DSE, said, "In the past 15 years, we haven't seen any visible efforts to restore investor confidence. Instead, new rules and taxes have been imposed that effectively pushed investors out of the market."

"No high-quality company has entered the market through an IPO in the last 10 years that we could proudly present to local or foreign investors and encourage them to invest. On the contrary, 70–80% of the IPOs that have come in the last 15 years have turned into junk stocks," he said.

Stock exchanges not invited to Investment Summit

DBA President Saiful Islam said, "A grand Bangladesh Investment Summit has been held in the country, but the capital market did not receive any representation or space in the event. This is deeply unfortunate. I don't understand how an investment summit can be considered successful without involving the capital market."

Minhaz Mannan said, "From what I saw at the Investment Summit, it seemed as though the capital market is not considered part of the country's economic system. This clearly shows the government has no real concern for the stock market."

DBA leaders further stated that weak leadership at the Bangladesh Securities and Exchange Commission (BSEC) is a major reason behind this neglect. 

The current commission is practically inactive. Forget about market development, it is not even performing regular activities. In the past eight months, there hasn't been a single IPO pending at BSEC. This is unprecedented in the history of capital markets globally, they said.