Budget to boost earnings of publicly-traded companies

There is no direct direction or incentives for the stock market in the proposed budget for FY23, but the "business-friendly" budget will indirectly benefit stock market investors, said stock market analysts.

In the proposed budget, the government has announced to increase tax on imported goods to protect the domestic industries and provide tax-cut and tax-free facilities for businesses, so the local industries will benefit, said experts.

Tax exemption on raw material import in the productive sectors and VAT exemption at the supply level will reduce the companies' production costs. As a result, the companies' profitability will increase, said EBL Securities, LankaBangla Securities, Green Delta Capital and Sheltech Brokerage Limited in their budget analyses.

The tax-related standard operating procedure offered to the listed companies will help boost their earnings, said the Sheltech Brokerage in its report on the budget proposed by Finance Minister AHM Mustafa Kamal on Thursday.

EBL Securities said in its report that the rate of tax at source on the supply of raw materials to cement and steel manufacturers has been cut from 7% to 4%.

Reduction of tax at source on supply of raw materials to manufacturers would improve the profitability of cement and steel product manufacturers. Construction material prices are expected to drop and consequently, construction costs may fall and benefit the real estate sector companies as well, said EBL Securities.

Analysts said the exporters outside the readymade garments sector will benefit most from this budget because their corporate tax rate has come down to 12% in one leap. The most notable among such companies are – Apex Footwear, Fortune Shoe, Apex Foods, BSRM, MI Cement, Square Pharma, Beximco, and Bashundhara Paper.

Officials of these companies said those who have local businesses have to maintain two accounts to get the benefit of tax reduction in exports.

LankaBangla Securities said, "Except for telcos, financial institutions, merchant banks, and all the publicly listed companies with 10% IPO offerings, will enjoy 20% corporate tax rate as opposed to 27.5% corporate tax rate for non-publicly traded companies in the same industry. This tax differential is supposed to encourage companies to get listed in the stock market."

The budget proposed to increase the tax deducted at source (TDS) on interest income for companies from 10% to 20%.

The stock market analysts said the higher TDS on interest income might make fixed deposit receipt (FDR) in the money market less lucrative for companies and they might shy away from banks and non-banking financial institutions. Consequently, their capital might ultimately flow to the stock market.

LankaBangla Securities' report said, "Capital gain on government securities was kept out of the purview of taxation till now. However, the introduction of the capital gain tax on government securities has made it a level playing field. Institutions including banks and non-banking financial institutions which regularly invest in those securities might be relatively more interested in the stock market now."

It also said, tax rebate has been set at 15% on eligible amounts, which is supposed to encourage investment in the capital market.

Currently, there are 350 listed companies on the stock exchanges. Out of them, 110 companies are financial institutions and the rest are manufacturers and service providers.