Although the new budget does not have anything directly for the capital market, the proposed tax measures – rebates for some certain sectors and increases for others – may have an impact on stocks.
It will have a positive impact on the profitability of the companies listed on the stock market in the sectors that receive tax exemption.
At the same time, the listed companies in the sectors experiencing increased levies may face a negative impact on their profits.
According to a budget review by EBL Securities, the proposed tax exemption will have a positive impact on the profits of companies in the pharmaceutical, stainless steel, tobacco, optical fibre, electronics, ceramic, textile, agri machinery, and pesticides sectors.
On the other hand, the increase in tax rate will have a negative impact on the listed companies in the IT, real estate, paper and tissue, cement, fuel, and power sectors, it added.
The brokerage house, however, believes that the proposed budget will have no impact on banks, non-bank financial institutions, or hotel and tourism businesses.
In the proposed budget for the fiscal 2023-24, the tax rebate facility for investment in the capital market has been maintained. The tax differential between listed and non-listed companies remains unchanged, and there is no scope for black money investment.
As long as the tax rebate benefits remain in place and the corporate tax gap remains unchanged, there will be little impact on the stock market, according to the EBL Securities review.
Pharmaceutical and chemical
In the proposed budget, the current facility for importing raw materials for some medicines, medical products, and healthcare items at a concessional rate has been maintained.
Anti-malarial and anti-tuberculosis drugs have been exempted from VAT at the production stage, with an extension of an additional 5% VAT exemption facility on two raw materials, soap and shampoo, for one year.
In this regard, EBL Securities says these policy measures will reduce production costs for pharmaceutical companies manufacturing drugs in the oncology, anti-diabetic, anti-malarial, and anti-tuberculosis therapeutic classes and decrease production costs for medical device companies manufacturing IV cannulas.
Also, owing to increasing regulatory duties, the import costs of foreign soaps and face washes will increase, so local manufacturing companies will benefit.
For those reasons, the profitability of ACI, ACI Formulation, Acme Pesticide, Active Fine Chemical, Beacon Pharma, Beximco Pharma, JMI Hospital, JMI Syringe, Renata, Acmelab, Orion Pharma, IBN Sina, Kohinoor Chemical, Keya Cosmetics, and Mamun Agro will increase.
Industry stakeholders said that the tax exemption will have a positive impact on the companies, but as the price of raw materials has increased in the global market, there is no scope to benefit considerably. The cost of raw materials, especially for the pharmaceutical industry, has gone up a lot. Those who manufacture cancer drugs may benefit.
In the proposed budget, the existing VAT exemption facility for production of refrigerators and freezers has been extended until 30 June 2024 and the exemption facility for production of washing machines, microwave ovens, electric ovens, blenders, juicers, mixers, grinders, electric kettles, multicookers, and pressure cookers has been extended until 30 June 2025.
So, domestic electronic goods manufacturers will maintain a competitive advantage over imported brands, and the cost of locally manufacturing lamps and switch sockets may come down.
From these measures, listed Walton, Singer, and Bangladesh Lamps may be beneficiaries, according to EBL Securities.
Local ceramic product manufacturers will benefit from lower cost of importing raw materials as customs duty declined to 5% from 10% on melamine or decalcomania paper Imported by tiles, sanitary and tableware products manufacturing industry.
Listed ceramic products manufacturer RAK Ceramic, Shinepukur Ceramic, Fu-Wang Ceramic, Monno Ceramic and Standard Ceramic will enjoy the advantage, says EBL Securities.
The value-added tax (VAT) reduced to 5% from 15% to 5% on terephthalic acid, ethylene glycol, hot rolled stainless steel, and import duty to 5% from 15% on coils with a thickness of 3mm –10 mm cold rolled stainless steel used in coils manufacturing industry.
The review said, decrease of tax at import stage on supply of raw materials to manufacturers would further increase the profitability of stainless steel manufacturers, where the listed beneficiaries are S Alam Cold Rolled, SS Steel and Nahee Aluminium.
Cable producers may also benefit from an exemption of VAT in excess of 5% at the production stage on "optical fibre cable" till 30 June 2024.
With the reduction in VAT at the production stage, the producers of optical fibre are expected to witness an improvement in their gross profit margin, resulting in higher profitability, noted EBL Securities.
Textile sector also may benefitted as the proposed budget exempted the existing 7.5% VAT on the sale of waste cotton, fabric waste and man-made fibre fabric waste.
In the budget, the existing specific rate of duty on cement clinker was increased from Tk500 to Tk700 per metric ton. The specific rate of duty for commercial importers increased from Tk750 to Tk950.
Dolomite, a raw ingredient for Portland cement, will be treated similarly to limestone and will be subject to a 30% supplementary duty at import stage. All the listed cement manufacturers' profitability will be decreased.
Paper and tissue
The budget proposed to impose 7.5% VAT on tissue products (toilet tissue, napkin tissue and facial tissue and pocket tissue) from existing 5%.
So, the tissue manufacturing companies may suffer from decreased consumer demand and thus create a moderately negative impact on their revenue generation from this segment.
Bashundhara Paper and Hakkani Pulp are the firms doing business in this sector.
Despite the government's emphasis on promoting technology, the proposed budget includes measures that are expected to raise the cost of importing IT hardware and software, which could potentially hinder the growth of the industry.
The budget proposed 5% VAT on software production and customization services, 25% customs duty (from existing 10%) and 15% VAT (from existing 0%) on the import of software products. Also increased VAT on mobile phone manufacturers and assemblers at the local stage.
So, software products may become costlier and hence create a decreased demand for software services. Domestic assembling and manufacturing of cellular phones will become costlier.
Aamra Technology, ADN Telecom, eGeneration, Genex Infosys and ITC's profit margin will decrease.
Fuel and power
Removal of the clause of payment of minimum capacity charge at the time of the contract of existing rental power plants or rent operated power plants might adversely impact the business of power plants.
And, withdrawal of concessional facilities on three raw materials and equipment used in local LPG cylinder manufacturing firms will increase their production costs.
Retail price of petroleum related products may go up.
Affected companies are listed power producing companies, Intraco Refueling, Energypac and MJL BD.