How frequent policy shifts deter firms from going public

If a company gets listed, it will enjoy tax benefits, and this is one of the major incentives for them to go public.

However, the government's frequent policy changes have disheartened listed firms many times, as they faced higher tax rates once they got listed.

It gave a clear, negative message to all good companies about getting listed in the market.

In the Finance Ordinance 2025, the government announced that the corporate tax rate for listed firms will be raised to 27.5 percent from the existing 20 percent to 22.5 percent from fiscal year FY27.

The only exemption was for those who offloaded more than 10 percent of shares through initial public offering (IPO).

Take the example of paint manufacturer Berger Paints Bangladesh Limited.

The multinational company had offloaded 5 percent of shares through IPO in 2006.

Last month, it decided to offload more than 5 percent of shares to the public through rights shares after receiving repeated requests from stock market investors and stock exchanges in order to improve the supply of good shares.

Another incentive was to avail better tax benefits compared to firms that have offloaded a lower percentage of shares.

However, the multinational company will not enjoy the tax benefit as its IPO share offloading will remain the same even if it raises its share in the market through rights shares.

Because only IPO offloading counts, several good companies will have to pay higher corporate tax such as Walton Hi-Tech Industries as it offloaded less than 1 percent of shares through IPO, although it increased share offloading later.

The examples of victims of frequent policy changes do not end here.

Once, listed tobacco-producing companies received more tax benefits than non-listed firms. However, now they are under the same tax structure.

Grameenphone got listed in 2009 knowing that it would have to pay a corporate tax 10 percentage points lower than non-listed telecom companies' 45 percent.

In 2013, however, the government halved the tax benefit by raising the corporate tax of listed telecom companies to 40 percent.

A company can offload shares through IPO only once, said Snehasish Barua, a tax analyst and managing director of SMAC Advisory Services Ltd.

So, companies that have already become listed by offloading 10 percent or a lesser percentage of shares have no chance to avail the tax benefit, he said.

"This is a disparity for them, as the tax rate will suddenly go up by 5 percent," he said.

Rupali Chowdhury, managing director of Berger, recently expressed her disappointment upon learning this.

"We had decided to offload shares based on the NBR's previous rule. The BSEC (Bangladesh Securities and Exchange Commission) also assured us of the tax benefit," she said.

However, this sudden change will surely disappoint its investors. "If this type of frequent policy change continues, how will a company get the incentive to get listed?" she asked.

Such systems will dishearten all other companies and prevent them from getting listed in Bangladesh. Another major reason for the reluctance to get listed in Bangladesh is the strict compliance requirements for listed firms, she said.

If non-listed firms also faced compliance requirements similar to those of listed firms, it would have encouraged them to go public, she said.

The compliance requirements of submitting financial reports and appointing independent directors exist even for non-listed firms in many countries, she added.

On top of that, she focused on reducing IPO processing time so that firms can get funds quickly, she added.