Sri Lanka will not impose new capital gains tax on shares: official

Oct 15, 2010 (LBO) - Sri Lanka is not planning a new capital gains tax on share transactions in an upcoming budget in November, deputy director general of the Securities and Exchange Commission Malik Cader said.

"There is no truth in this story," Cader said. "We have checked it and no such tax is planned." 

 

Sri Lanka's stocks rose 110 percent by end September 2010, despite attempts by the regulator to calm speculative behavior, but has since corrected somewhat.

Authorities in Bangladesh have also been trying to calm markets fearing economy-wide consequences if there is a massive crash in the stock market following a bubble.

Sri Lanka emerged from a 30-year war in May 2009 and a balance of payments crisis a month later with the signing of a deal with International Monetary Fund.

Monetary policy has since been loose and economic growth high setting the conditions for higher prices.
The SEC has also taken steps to curb margin trading. In the late 1920s margin trading became popular in the United States as the Federal Reserve printed money.

In 1929 the stock market crashed and since then margin accounts have been limited to 50 percent. SEC also imposed a similar rule.

But fears of a bubble heightened as companies began trading at triple digit earnings multiples and firms with weak fundamentals and even losses rose to new heights.

Unlike in developed markets Sri Lanka does not have a tax on share trading profits. In Sri Lanka basic foods are taxed at high levels, keeping grain and protein prices high.

A new budget is due to be presented in parliament in November. The government is trying to raise more taxes from the people to narrow the deficit.

Chronic deficits has made Sri Lanka's central bank print money keeping inflation high, and also pushed up interest rates, making it difficult for people to build houses and businesses to borrow and invest to grow.

source - www.lbo.lk