Sunday, November 28, 2010

Budget impact positive on banks, share market: Analysts

By Duruthu Edirimuni Chandrasekera 

Sri Lanka’s banking and finance sector has come out a winner from the 2011 budget as it has put this sector on an even playing field with the rest of the sectors pertaining to taxation, according to industry analysts.

“The reduction in VAT on financial services from 20% to 12%, elimination of bank debit tax, the removal of VAT on leasing assets plus in overall income taxation to 28% has put the sector on a level playing field with the rest of the sectors in terms of taxation,” Nikita Tissera, Head of Research Sampath Securities said.

He said that the banking and finance as a sector paid approximately 55% to 60% of their earnings as tax and has been trading at a discounted multiple for that reason compared to other industries and other banks in the South Asian region. He added that the 8% reduction in the VAT on financial services is more than the systematic reduction which will soon see reactionary re-pricing in the banking sector.

“The government also plans to increase the entities listed on the Colombo Stock Exchange by way of Initial Public Offerings (IPO). With this in mind, 1% of the value of IPO has been allowed as a deductible expense for tax purposes,” he noted.

Analysts noted that the Share Transaction Levy increase on stock market transitions from 0.2% to 0.3% will result in higher transaction fees on trading activities. “This pushes the overall cost of a share transaction to 1.12% including brokerage,” an analyst added.

Ravi Abeysuriya, CEO Heraymila Securities noted that freer cross border capital flows both in and out of the country, easier equity market listing, fairer tax treatment of corporate debt securities, and proposed expansion of pension funds to fund future retirement costs are positives. “This will also deepen the capital markets, which the businesses can tap,” he added.

Mr. Tissera noted that the tourism sector will benefit from the reduction of taxation to 12% from 15% from income from tourism related businesses.

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