Undisclosed money in stocks fails to bring positive results

Government move to allow investment of undisclosed money in the stock market failed to bring any positive result in the market due to frequent change of policy. Although the investment provision of undisclosed money in stocks was designed to prop up the market, the country’s capital market witnessed several volatile occasions following hurried changes in government policies in this regard.
In the latest change in the provision, the government would allow only legally earned yet untaxed money for stock investment which is subject to 10 per cent tax, said a statutory regulatory order issued by National Board of Revenue on Sunday.


The government has allowed investment of undisclosed money in the share market, upon payment of 10 per cent tax, without question in the budget for FY 2011-12. ‘Wholesale money whitening was not justified. And the ailing capital market suffered the most following frequent change of policies on the matter,’ Mahmood Osman Imam, a professor of finance at Dhaka University told New Age on Monday. According to Osman, in real terms not any big bulk of such fund was injected in the market earlier, rather it was used as a psychological booster for the investors.
‘The government should have been more careful if its intention was just to boost investors with such sensitive tool,’ he said. ‘The government should not adopt any policy on such sensitive issues which it could not implement properly,’ he remarked. He also said that the frequent policy change on the matter seemed to become a market dominating tool.

After the passage of budget with the provision in June 2011, country’s ailing capital market rose significantly and witnessed the most successful month of the year in July.
In July the general index of the Dhaka bourse gained 553 points until July 24 and the turnover reached to Tk 1,957.92 crore.
But there was no clear statement from the government whether illegally earned money would be allowed for investment in the share market. The first blow came when finance minister Abul Maal Abdul Muhith on August 16 said the government was making some changes to the Statutory Regulatory Order relating to money-whitening to stop investment of money laundered or obtained through terror routes in the capital market.
Following Muhith’s comment, the general index of the DSE shed 1.11 per cent, or 68.35 points, on the next day and agitated investors went for street protests. The NBR had to come up with a clarification saying that no question will be asked about the money source used for stock investment.
After that on several occasions the market turned volatile surrounding the undisclosed money concern and the DSE index suffered some massive plunges following rumours that the government might scrap the wholesale money whitening through stocks.  

Even until late December, the NBR had to clarify three times the meaning of what it meant by this and whether other government agencies were allowed to scrutinise the origin of such money. ‘The undisclosed money investment seemed to be a market manipulating tool. After every rumour about the matter the market plunged and the NBR came with a clarification to heal the situation,’ said market analyst Akter H Sannamat. He said that the government should have cleared the matter properly and the way NBR repeatedly clarified the matter was surprising. ‘I don’t understand why the NBR had to clarify the same thing over and over again. Such stand of the revenue board seems surprising,’ he said.

Sannmamt also said that the government needs to see whether any quarter intentionally spread rumours about undisclosed money and ripped benefit after the NBR clarifications. 
The recently issued SRO kept all other earlier provisions unchanged including submission of declaration to taxmen by July 15, 2012, attachment of copies of pay-order, portfolio statement, and beneficiary owners account. Investors with the legally earned but undeclared money cannot withdraw or transfer funds to other sectors until June 30, 2013.



News Source: New Age