Capital gains tax to be reintroduced

After taking stock of the economy in the backdrop of the uncertain global environment, the Cabinet, at a special meeting yesterday, approved new tax reforms including the introduction of Capital Gain Tax to arrest the gradual decline of state revenue. 

Prime Minister Ranil Wickremesinghe submitted a paper at the special Cabinet meeting held in this regard with in-depth reference to the present status of economy. The tax reforms are also intended to generate resources to meet budgetary requirements. 

As for the non corporate income tax and corporate tax, the Cabinet proposed to suspend the 2016 budgetary proposals and continue the rates introduced for 2015. 

Asserting that Capital Gains had not been taxed since 1987, the government decided to reintroduce it. In the paper, it is observed that the last decades have seen massive gains in private capitals among the higher echelons of society. 

Also, it is proposed to keep the Nation Building Tax at the rate of two per cent reversing the budgetary proposal to increase it to four per cent. Instead of having different rates of VAT, a single rate of 15 per cent is proposed. Besides, exemptions on telecommunications, private health and private education will be removed as proposed in the paper. 

The government intends to increase its revenue to 13.5 percent of the GDP. The total expenditure and net lending will be at 19 per cent of GDP. The budget deficit is slated to drop to 5.4 per cent. 

Parliament will be notified once a month on the progress of implementing these taxes. A three member committee including the Treasury Secretary will oversee the implementation of tax reforms. (Kelum Bandara) 

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Sri Lanka exports, imports declines; trade gap widens in December 2015

(LBO) – Sri Lanka’s exports fell 18.7 percent to 817.5 million US dollars in December 2015 from a year earlier while imports fell at a slower 8.5 percent to 1,644.7 million US dollars, official data showed.

The trade gap widens 4.4 percent to 827.3 million US dollars from a year earlier.

On a cumulative basis, the trade deficit during 2015 expanded marginally by 1.7 percent to US dollars 8,430 million over 2014.

Earnings from exports during 2015 decreased by 5.6 percent to 10,505 million US dollars while expenditure on imports declined by 2.5 percent to 18,935 million US dollars.

The Central Bank said it reflected the subdued global demand and lower commodity prices.

“Lower performance in tea, rubber products, textile and garments and seafood exports contributed mainly for the drop in exports,” the Bank said.

“Significant decline recorded in fuel import bill due to lower oil prices and lower thermal power generation caused for the decline in import expenditure,”

“The leading markets for merchandise exports of Sri Lanka during 2015 continued to be the USA, UK, India, Germany and Italy accounting for about 51 percent of total exports, while the main import origins continued to be India, China, Japan, UAE and Singapore accounting for about 60 percent of total imports.”

Sri Lanka tourism earnings up 23-pct; CSE net inflows down 97-pct in 2015

(LBO) – Sri Lanka’s earnings from tourism has increased significantly in 2015 recording a 22.6 percent increase against the previous year.

In the twelve months to December, Sri Lanka has earned 2,980.7 million US dollars from tourism while earning 2,431.1 million US dollars in 2014.

Workers’ remittances recorded a marginal decline of 0.5 percent in 2015.

Net inflows to the CSE which includes secondary and primary market transactions have recorded a 97.5 percent decline in 2015 receiving just 4 million US dollars against 162.6 million US dollars received in the previous year.

The major source of inflows to the financial account of the balance of payments during 2015 were the issuance of two international sovereign bonds and swap arrangement of the Reserve Bank of India.

Sri Lanka’s gross official reserves as at end December 2015 amounted to 7.3 billion US dollars, equivalent to 4.6 months of imports while total foreign assets amounted to 9.3 billion US dollars, equivalent to 5.9 months of imports.

During 2016 up to end February, the rupee depreciated by 0.2 per cent against the US dollar, the Central Bank said.

Based on cross currency exchange rate movements, the Sri Lankan rupee appreciated against the sterling pound by 6.8 percent, the Australian dollar by 2.3 percent and the Indian rupee by 3.3 percent, while depreciating against the Japanese yen by 6.1 percent and the euro by 0.3 percent during this period.

AIA Insurance clarifies its position on minimum public float

(LBO) – AIA Insurance has issued an explanation clarifying its position on minimum public float saying the shortfall is to be rectified complying with the relevant listing rules.

Existing public holding of the company is 2.84 percent as at the end of last year.

1,794 public shareholders of the company represent 874,435 shares in the total issued and fully paid up shares of 30,749,370 of the company.

The company said it received an exemption from the Securities and Exchange Commission in July 2015 on the maintenance of minimum public holding as a continuous listing requirement.

“The said exemption is valid until 31 December 2016 or until a draft legislation to amend the Regulation of Insurance Industry Act is passed, and the company delists itself from the CSE in pursuance of same, whichever is earlier with the right reserved for the SEC to re-visit the said exemption by 31 December 2016.”

Several companies have already de-listed and several others have transferred to the secondary Diri Savi Board following the introduction of mandatory public holding rules.

The SEC introduced the mandatory minimum public float requirement for listed companies following a practice that has already been adopted by a large number of international and regional jurisdictions.

In addition to increasing liquidity in the market this initiative was also expected to facilitate a better price discovery mechanism.

Chief Executive Officer at the Colombo Stock Exchange Rajeeva Bandaranaike recently said Sri Lanka’s securities regulator is currently reconsidering the rule as the intention of introducing such rule was not met.

As per the current minimum public holding rules, there are two ways to get listed on the main board of the Colombo Stock Exchange.

One option is that a listed entity on the main board should maintain a minimum public holding of 20 percent of its total listed ordinary voting shares in the hands of a minimum of 750 public shareholders.

Second option is that a market capitalization of 5 billion rupees of its public holding in the hands of a minimum of 500 public shareholders while maintaining a minimum public holding of 10 percent.

To list on the secondary DiriSavi Board, a company should maintain a minimum public holding of 10 percent of its total listed shares in the hands of a minimum of 200 public shareholders.

Sri Lanka to withdraw licenses of defunct mini hydro power plants

(LBO) – Sri Lanka’s Power Ministry is to withdraw licenses of mini hydro power plants that have been non-operational for more than 2 years.

Power and Renewable Energy Minister Ranjith Siyambalapitiya said a circular in this regard will be issued soon.

“There is an issue with mini hydro power plant licensing. Some license holders are selling their licenses underhand. It leads to delays in electricity generation,” Siyambalapitiya said.

He made this comment while speaking at the Kandy coordinating committee meeting yesterday.

“We’ll issue a circular today. It will cancel licenses issued to small hydro power projects that have not started operations for more than 2 years,” he said.

However, the license holders will entertain a time period to appeal against the cancellation of licenses if they have a valid reason.

“Otherwise we have to issue those licenses to new people after inviting open bids.”

Small hydro power plants currently supplies around 300 MW to the national grid.

Chinese tourists outnumber Indians visiting Sri Lanka

ECONOMYNEXT – The number of Chinese tourists coming to Sri Lanka in February 2016 outnumbered those from India, the island’s main tourism market, according to tourism authority statistics.

Tourist arrivals to Sri Lanka went up 19.4 percent to 197,697 in February 2016 from a year ago, continuing a rising trend in tourists since the island’s ethnic war ended in 2009.

The number of Chinese tourists, including those from Hong Kong and Macau, rose 17.4 percent to 32,186 in February while visitors from India rose 32.8 percent to 26,559.

In January 2016, the number of arrivals from India had grown 26 percent to 28,895 from a year ago while that from China, including Hong Kong and Macau, shot up 122 percent to 26,083.

Last year, India was the biggest tourism source market but China was catching up having the fastest growth rate, tourism office statistics showed.

In February 2016, growth from the traditional tourism markets of the United Kingdwom and Germany remained strong.

The number of visitors from the U.K. rose 26.2 percent to 19,194 while that from Germany rose 10.5 percent to 14,426.

Fitch assigns first-time ‘A(lka)’ to Richard Pieris & Company

Fitch Ratings has assigned Sri Lanka-based conglomerate, Richard Pieris & Company PLC (RICH), a National Long-Term ‘A(lka)’ rating.

The Rating Outlook is Stable. Fitch has also assigned RICH’s outstanding senior unsecured debentures National Long-Term Ratings of ‘A(lka)’ as they represent senior unsecured obligations of the company and would rank equally with the company’s other senior unsecured debt.

RICH’s rating reflects the diversified nature of its business, strong market leadership in most product categories and its well-established operating history.

The rating is supported by Fitch’s expectation that the group is likely to maintain leverage, measured by net adjusted debt/operating EBITDAR (excluding its finance company subsidiary, Richard Pieris Finance Limited), at less than 3.0x over the medium term, compared with 2.04x in the financial year ended 31 March 2015 (FY15).

High debt at the holding company level, challenges in the tea and rubber sectors and plans for aggressive growth in the financial services sector constrain the rating in the medium term.

Growth in Retail Business: RICH’s strategy of adopting a larger store format that sells grocery items, merchandise and consumer durables, compared to stores that sell mainly grocery items operated by its peers, has enabled the company to generate higher revenue per customer and also maintain better margins. We believe rising disposable income levels, rapid urbanisation and currently low supermarket penetration in Sri Lanka provide strong growth opportunities for the company to expand this segment.

Intense competition among peers remains a key risk. Expansion in Latex Mattresses, Tyres: In the medium term, RICH aims to almost double its capacity in the natural foam latex mattress segment to meet growing demand from key export markets in the US and Europe.

RICH has a competitive advantage in this segment because it sources quality rubber from its sister company Kegalle Plantation PLC.

RICH also plans to enter into production of tyres for two- and three-wheeler vehicles to tap the significant demand for tyres from both the replacement market and vehicle manufacturers in the medium term.

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