Financial Times

Selling government-owned hotel stocks progressive move by Amunugama
Stockbrokers were upbeat on the budget 2005 and relieved that the capital gains tax had been replaced with a smaller transaction tax. "The finance Minister has done wonderfully well," said a stockbroker who didn't want to be named.

Asanga Seneviratne, Chairman, Stockbrokers' Association, was delighted with the new government's budget, saying it was a very good and a very well managed one.

"We are unexpectedly surprised and capital markets are concerned especially on the stockbroking side, it is a positive budget," he said. Finance Minister Sarath Amunugama proposed a 0.2 percent tax on transaction value on each side of the transaction of the stock market replacing VAT on financial services on stock market transactions and income tax imposed on the profit on sale of shares.

Seneviratne added the transaction tax was slightly high, but considering the situation the government is faced with, it is bearable. He said the fact the government has not introduced capital gains tax will strengthen investor confidence in the government.

While commending the measures taken to bring in more people into the tax net, he said the proposal to sell government hotel stocks was very progressive.

"The Finance Minister has made a positive statement by saying the government is trying to increase participation in the Colombo Stock Exchange by divesting hotel sector stocks and I think this is a direct reference to Hilton and Galadari stocks," he said. Seneviratne said if the stocks were on an open-bid basis, the government would get a very good response.

Nirantha Wickramasekara, CFO, First Capital Group: "The business community feared this budget and thought this would bring out adverse results to the community. But this is not so. The only thing we are disappointed about this budget, as a primary dealer, is the income tax on the trading of government securities. It's applied with retrospective effect effective from the 2003/04 financial year. This is the year that the primary dealers made most profits.

The government has to understand that the reason such profits were made was because of the rate cuts in the time period and that is temporary. This tax would have severe ill effects on the primary dealer system." Channa Amaratunga- Equity Analyst- Asia Capital said:

The 0.2% transaction tax which has replaced 15% capital gains tax is more principally sound. The implementation and collection is very simple. The only negative thing I see here is that this might turn foreigners away from Sri Lanka- as our country is already considered an expensive place to invest in. This might also raise the bar for the day traders which essentially isn't a bad thing as the stock market should be a place for the long term investor, and not a gamble."

"I'm a bit sceptical on the introduction of the multi band VAT systems. It’s correct in principle with its progressive effects but the practical aspects of implementation is to be seen. I see the hotel industry booming with the good news that there won't be additional taxation on the sector. This move will come handy in the government's move to generate revenue with the sale of stocks in the hospitality industry.”

Dimuthu Abeyesekera, CEO, Asha Phillip Securities Ltd, said from the capital market point of view, the budget would encourage more companies to list.

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