Mohammad Mufazzal
Companies have been found as paying a higher tax after listing in the stock market, compared to what they paid as non-listed firms, though there is a tax incentive for public entities.
The ICB Capital Management dug it up in a study on income tax payments made by 12 companies before and after listing, establishing that tax revenue collection would get a boost if more and more companies were listed.
Experts also insist that listing leads to better governance and financial transparency and ensures support from the regulatory bodies, when needed, in improving efficiency of the business entities.
The 12 companies, which were part of the research, went public between 2014 and 2018. The average annual tax paid by these companies for a period of six years jumped an astounding 165 per cent after they listed in the capital market.
The corporate tax gap between listed and non-listed firms, other than banks, insurers, other financial institutions, and telecom operators, was 10 per cent until FY20. It was then reduced to 7.5 per cent in FY21.
In the following fiscal year, the gap was revised to 5-7.5 per cent, subject to conditions.
Aamra Networks got listed on the bourses in 2017, raising Tk 562.5 million. Its average annual tax payment before listing was Tk 7.36 million, which escalated by 62.5 per cent for six years after listing.
Of the other companies, the average tax paid annually by Queen South Textile Mills rose 56 per cent, S. S. Steel 98 per cent, BBS Cables 266 per cent, and Shepherd Industries 84 per cent.
Casting light on why the tax payment shot up despite the incentive, Mazeda Khatun, managing director of ICB Capital Management, said listed companies disclose financial results in regular intervals and are accountable to investors.
"That makes them financially more transparent," she said,
Narrow scope of tax evasion
General investors examine the business performance of a listed firm since its submission of IPO (initial public offering) proposal. The firm is bound to hold annual general meetings (AGM) in presence of general shareholders and publish quarterly and annual financial statements.
The company is also required to disclose all price sensitive information and reply to the exchanges' queries regarding any disparity in financial data or stock's movement on the bourses.
The obligations narrow the scope of hiding income to tamper with tax payables. The regulator also conducts special audits if a company is suspected of any wrongdoing intended to deprive investors of due return.
Besides, a listed entity strives to demonstrate good performance and a growth in business to investors to keep the market value of its shares elevated.
On the other hand, non-listed companies have a tendency to show lower profits to reduce tax burden.
"They can influence tax officials to reduce tax payables," said Md. Ashequr Rahman, managing director of Midway Securities.
Except for some large companies, including telecom operators, the revenue board does not scrutinise the financials of non-listed companies.
Companies get support when in trouble
While regulatory supervision forces companies to conform to certain business practices, they also get support if in trouble.
For example, there were instances when companies turned dysfunctional after the demise of owners.
"Many companies' owners die without leaving capable successors and then the companies face difficulties in continuing operations," said Abdus Salam Murshedy, a lawmaker and a director of Envoy Textile.
A listed company can easily get support for its corporate structure, he added.
Investors keep an eye on public entities as they have interest in their successful operations. Hence, they extend support so that a failing entity can rebound. Mandatory disclosures also help discipline businesses.
Moreover, if a company falls short of capital, the regulator and even the government comes forward to help overcome that.
Listing elevates brand value
Brand image is associated with listing in the market.
Experts say the largest telecom company, Grameenphone listed in 2009 not solely to raise fund but also to boost its brand value, facing competition with its peer AkTEL, former brand name of Robi Axiata.
Mr Rahman, of Midway Securities, said Grameen's foreign sponsors had been looking to increase the company's brand value in the local market.
"It's true that the company needed capital for capacity expansion. However, the public listing helped the company to stay ahead of peers. That's why renowned multinational companies are keen on becoming public entities."
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