How the budget will impact listed firms

Infographics: TBS

While the new budget lacks comprehensive provisions for the capital market beyond an investment opportunity for black money, the proposed tax measures – rebates for certain sectors and increases for others – could influence stock performance.

The sector-specific measures proposed for the upcoming fiscal year are expected to positively impact the profitability of listed companies across various sectors receiving tax cuts and exemptions.

Conversely, companies in sectors facing additional tax burdens may experience negative effects on their profits.

Stakeholders in pre-budget discussions requested the government provide incentives for the market to boost investor confidence. They also sought a wider tax gap between listed and non-listed firms and opposed capital gains tax on individuals amidst the bearish trend following the removal of the floor price and rising interest rates.

However, none of these stakeholder demands were fulfilled in the budget. Instead, a 15% tax on capital gains exceeding Tk50 lakh has been introduced, and the tax gap between listed and non-listed firms has been narrowed. 

The budget also reinstated the opportunity to legalise undisclosed money at a 15% tax rate, provided it is invested in the capital market, while excise duty on bank deposits was extended from Tk10 lakh to Tk5 crore.

EBL Securities noted in its budget review that the imposition of the capital gains tax may dampen the interest of high-net-worth individuals in investing in the capital market. 

"The further reduction of the income tax gap by 2.5% between listed and non-listed companies, along with the increased source tax for sponsors and directors, will discourage high-quality fundamental companies from listing on the capital market," it added. 

"The legalisation of undisclosed money at a fixed tax rate will positively impact the money supply in the economy. Additionally, costlier bank deposits may indirectly channel some funds into the capital market."  

According to the review, the proposed tax exemptions and reductions are expected to benefit companies in the pharmaceutical, chemicals, information technology, textile, and food and allied sectors, boosting their profitability.

On the other hand, the increase in tax rates will adversely affect listed companies in sectors such as consumer electronics, tobacco, fuel and power, telecom, food and allied, IT, real estate, paper and tissue, cement, and others, EBL Securities added.

The brokerage house, however, believes that the proposed budget will have no impact on non-bank financial institutions, the paper and tissue industry, motorbike producers, travel and leisure, or the real estate sector.

Pharmaceutical and chemical

In the budget, the government has waived import duty on raw materials for certain medicines, exempted value-added tax (VAT) on raw materials for cancer medicines, customs duty (CD), and VAT on medical products and healthcare items.

The CD has also been waived on 16 additional raw materials necessary for active pharmaceutical ingredient (API) manufacturing, and VAT has been waived on six raw materials essential for producing cancer medicines.

Additionally, CD, VAT, and advance tax on dengue testing kits have been withdrawn. CD on the imports of dialysis filters and circuits has been reduced from 10% to 1%.

EBL Securities states the measures will reduce production costs for drugmakers manufacturing oncology and macrolide antibiotic drugs, decrease production costs for syringes, vials, IVs, and blood bags, enhance competition for local spinal needle manufacturers against importers, and lower the cost of services for companies offering dengue testing and kidney dialysis.

For these reasons, companies such as Beacon Pharma, Beximco Pharma, JMI Hospital, JMI Syringe, Renata, Square Pharma, Acme Laboratories, and Active Fine Chemicals are expected to benefit.

Information technology

VAT has been exempted for local purchases of raw materials and spare parts used in the production of computers and computer-related accessories, and 15% VAT has been waived on importing laptops.

In this regard, the EBL said the measures will reduce manufacturing costs for the local manufacturers of computers and computer-related accessories and decrease the price of imported laptops, which will help limit the number of fake or refurbished laptops on the market.

Thus, the listed firm, Daffodil Computers, will benefit.

Textile sector

The customs duty on purified terephthalic acid (PTA) and mono-ethylene glycol (MEG) was reduced by 1%, and the customs duty on textile-related machinery, spare parts, and raw materials has been withdrawn.

These measures will decrease the production cost of fibres for the local manufacturers to increase competitiveness in the export market, citing that the EBL review said, Evince Textile, Hamid Fabrics, HR Textile, and other textile firms will benefit.

Also, LankaBangla Securities said in its budget review that all the listed textile firms will benefit.

Food and allies

A 5% import duty with a 10% regulatory duty is imposed on the import of shelled cashew nuts. Rohima Food Corporation will benefit from the measure.

Consumer electronics

The consumer electronics sector will be hit as VAT, import duty, and other taxes have been increased.

As a result, the cost of locally manufactured LED bulbs and energy-saving lamps may increase, and the cost of locally manufactured air conditioners, refrigerators, and freezers may rise.

In the budget, a 15% VAT has been imposed on local manufacturing of energy-saving bulbs instead of 5%, a 10% import duty on raw materials imports of LED lamps and energy-saving lamps is imposed, a 15% VAT is imposed instead of 5% at the manufacturing stage on tube lights, a 7.5% VAT is imposed on air conditioners, a 7.50% VAT is imposed instead of 5% at local manufacturing of refrigerators and freezers, and a facility of hi-tech parks is limited to government high-tech parks.

EBL Securities said the local electronic giant Walton, multinational Singer Bangladesh, and BD Lamps will be affected as costs surge.

Owing to the increase in the minimum price of all four segments of cigarettes, supplementary duty (SD) for the lower segment has been increased by 200 basis points, and for the other three segments, SD increased by 50 basis points, and VAT increased to 15% from 7.5% at the local manufacturing stage on cigarette paper and bidi papers.

This measure will impact British American Tobacco, Bangladesh as tax expenses will increase.

Fuel and power

The customs duty for importing plant and equipment and erection materials by power companies has been raised to 5% from 0%; the import duty for materials used for establishing or operating CNG/LPG stations has been increased to 5% from 0%; and the minimum value of furnace oil, base oil, and lubricant oil has been raised.  

The proposed measures will increase the cost of building and maintaining power plants, the cost of establishing or operating CNG/LPG stations, and the gross revenue of the manufacturers of furnace oil, base oil, and lubricant oil.

EBL Securities said listed power companies including MJL Bangladesh, Padma Oil, Jamuna Oil, Meghna Petroleum, Intraco, and Energypac will be affected.

Telecom

The cost of sale for the telecom companies will increase, and domestic assembling and manufacturing of cellular phones will benefit from lower tax rates, the EBL Securities said, as in the proposed budget, the SD on SIM, RUIM card enable mobile telecom service increased to 20% from 15%, and VAT on SIM, e-SIM, to Tk300 from Tk200.

As a result, Grameenphone and Robi will be affected, EBL Securities said.