Companies prefer to remain unlisted despite the tax advantage

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Although the corporate tax levied on listed companies is lower than that of their unlisted counterparts, many companies in Bangladesh do not wish to join the stock market as they want to avoid the obligation to ensure good corporate governance. business, regularly disclose financial information and comply with other rules.

In addition, their tendency to evade taxes drives many companies away from the stock market as their financial records would come under scrutiny once listed, according to market analysts and participants.

Without tightening the tax rules and without guaranteeing an adequate application, the only reduction of the corporation tax and the maintenance of the gap between the companies listed on the stock exchange and the non-listed companies should not lead to a great improvement in the supply of new securities on the market, which is in a downtrend.

The current corporate tax rate for listed and unlisted companies is 22.5% and 30% respectively.

The National Board of Revenue has maintained a 7.5 percentage point gap between the two categories since fiscal year 2020-21, down from 10% since fiscal year 2006-07.

AB Mirza Azizul Islam, a former adviser to the caretaker government, said entrepreneurs are not attracted to the incentive of a tax gap for many reasons.

When a company is listed on the stock exchange, it is held accountable and must regularly publish financial statements.

“Also, some entrepreneurs don’t want to share their businesses and instead prefer full control and thus avoid offloading shares,” he said.

In addition, listed companies are also required to hold annual general meetings, but some entrepreneurs do not like these requirements, Islam added.

In response to a question, Islam, also a former chairman of the Bangladesh Securities and Exchange Commission, said tax evasion is easy for unlisted companies with the help of auditors.

“That’s why some companies don’t want to be listed even though there is still a tax gap between listed and unlisted companies,” he said.

The corporate tax gap for listed and unlisted companies is not considered lucrative for most entrepreneurs because the culture of tax avoidance is common for unlisted companies.

“So the quotations have not exploded despite several changes in the tax gap year after year,” said an investment banker preferring anonymity.

The number of companies listed on the Dhaka Stock Exchange (DSE) currently stands at 349 while around 30,000 companies submitted tax returns to the National Board of Revenue in the last fiscal year.

The number of companies listed on the Bombay Stock Exchange in India was 5,439 while the Karachi Stock Exchange in Pakistan was 576.

The tax gap was 5 percentage points until fiscal year 2002-2003, but then increased to 7.5 percentage points in the following fiscal year as an incentive for businesses to register.

In fiscal year 2006-07, the government further increased the gap to 10 percentage points, which continued until finally narrowing to 7.5 percentage points in 2020-21, according to the National. Board of Revenue.

“The global ecosystem is also not lucrative for a company to go public, so the number of listed companies in the market is still low compared to neighboring countries,” he said, adding that he easier access to bank loans and their reluctance to disclose financial information is making people shy about going public.

If a company is listed on the stock exchange, it has practically no possibility of evading tax.

“They consider tax evasion to be more lucrative than the tax gap because tax evasion is easy,” the investment banker said.

Richard D Rozario, Chairman of DSE Brokers Association of Bangladesh, said there are many reasons that discourage entrepreneurs from going public such as easy access to bank loans and lack of accountability of unlisted companies. .

There is no requirement for multinational companies to be listed on the Bangladesh stock exchange, but they should otherwise be required to do so.

“Unless they are ordered, multinationals will not be listed but the stock market badly needs them,” he added.

The number of initial public offerings (IPOs) and fundraisings from the stock market fell in fiscal year 2021-22. In the past 11 months, six companies raised about Tk 608 crore through IPOs, while 16 companies raised Tk 1,684 crore a year earlier.

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