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Battered brokers bemoan Capital Gains Tax

Battered brokers bemoan Capital Gains Tax

By Charumini de Silva

Battered stockbrokers are urging the Government to consider reintroducing the Share Transaction Levy (STL) as a less damaging alternative to the Capital Gains Tax (CGT), which they warn will further hurt the Colombo Bourse.

“At this juncture where markets’ daily trading volumes are at record-low levels, bringing in a Capital Gains Tax would be counterproductive,” Colombo Stock Brokers Association President Ravi Abyesuriya told the Daily FT.

As an alternative, the CSBA Chief suggested that it would be more appropriate for the Government to reinstate the STL which had contributed Rs. 38 billion to Treasury coffers as revenue over the last decade. Last year the amount raised was Rs. 1.5 billion.

In the 2016 Budget, in a surprise move, the Government decided to remove the 0.3% STL charged to both buyers and sellers with effect from 1 January.

Originally capital market stakeholders welcomed the removal. However, following the Government’s recent announcement of the return of the CGT following its removal in 1987, the CSBA is urging a reintroduction of the STL. 

While acknowledging that the present Government needed to boost revenue, Abeysuriya said that re-implementing the CGT was not the best course of action.

He said that the market had seen a “huge plunge” following the announcement of the reintroduction of the CGT. “From an investor’s point of view, the Capital Gains Tax is a declaration file and it scares away investors,” he added.

Year-to-date, the market has dipped by 12%, with over Rs. 400 billion in value wiped off while net foreign outflow has been Rs. 1.3 billion.

Highlighting the practical difficulties in implementing the CGT, Abeysuriya asserted that while the Government taxed gains it would also have to accept the capital losses as the calculation and mechanisms of it were extremely complicated and cumbersome. 

“Sri Lanka does not have sophisticated systems like the US or the UK to undertake this whole calculation. With all that effort we will ultimately not get what we got through STL. The Government would have to forego what it was generating, which got credited to its account automatically on a daily basis,” he stressed.

In addition, Abeysuriya noted that the negative outlook posted by international rating agencies over Sri Lanka’s macroeconomic fundamentals had also impacted the Colombo Bourse with foreign investments exiting. 

Emerging debt swelled $1.6 t in 2015, poses risks: IIF

Reuters: Total debt in emerging markets grew by $1.6 trillion in 2015 to more than $62 trillion, the Institute of International Finance said last week, warning that higher indebtedness raised repayment risks and endangered future economic growth.

The Washington-based group, one of the most authoritative sources of data on investment flows to the developing world, noted that $730 billion of bonds issued by emerging markets governments and companies were due for repayment in 2016. Another $890 billion matures next year, a third of it in US dollars.

This debt-servicing hump is a result of a borrowing spree after the 2008 global financial crisis, Reuters has reported.

The IIF said in a report that as countries increasingly use money they raise to repay maturing debt, "high levels of indebtedness – andthe need for eventual deleveraging – willlikely constrain EM growth going forward".

The report noted year-to-date government bond and loan sales were almost 35 percent below the same period in 2015. "With a record level of upcoming redemptions through 2017, EM issuance has been subdued this year, with investors remaining uneasy about a potential rise in EM corporate default risk," it added.

The IIF contrasted developing countries' debt situation with advanced economies, where heavy deleveraging by governments as well as households brought down debt levels by $12 trillion last year to around $175 trillion.

That allows scope for more spending to boost recovery.

Emerging market indebtedness, on the other hand, is growing across all sectors. Non- financial corporate debt rose by over 6.5 percentage points in 2015 to more than 100% of GDP, surpassing mature markets' 87% average.

The IIF also noted that household debt rose more than $335 billion in 2015, surpassing $8 trillion, as consumers in many emerging markets continued to take advantage of monetary policy easing and low interest rates.

That took indebtedness close to 35% of GDP, up from 15-20% pre-crisis. The build-up was particularly pronounced in emerging Asia, where household debt-to-GDP ratios are over 40%, the report noted.

On the positive side, while emerging public sector debt rose over three percentage points in 2015 to more than 45% of GDP, this remains well below the 110% ratio in mature markets.

The increase last year was also concentrated entirely in local currency bonds, the outstanding volume of which swelled more than $2 trillion to some $22 trillion. Outstanding hard currency debt declined by $72 billion to $3.3 trillion.

Source: http://www.ft.lk/article/532335/Battered-brokers-bemoan-Capital-Gains- Tax#sthash.VfL2Xbzz.dpuf

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