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Sri Lanka Equity Forum » Stock Market Talk »  Sri Lanka tax hikes will strengthen state finances: Fitch

Sri Lanka tax hikes will strengthen state finances: Fitch

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stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
ECONOMYNEXT - Sri Lanka's tax hikes will strengthen the revenue base, but some of the revenue assumptions look optimistic and government debt remains stubbornly high, Fitch, a rating agency said.
Sri Lanka hopes to reduce the budget deficit to 4.6 percent of gross domestic product in 2017 from 5.4 percent in 2016.
"Fiscal consolidation will be helped by tax reforms that should go some way to bolstering the weak revenue base, which is a key reason for the sovereign's weak fiscal finances," the rating agency said.
"However, Fitch Ratings believes that the impact of the revenue reforms will depend on implementation; and some of the budget assumptions look optimistic, posing risks to the projections."
The government's real GDP growth projection of 6 to 7 percent for 2017 is higher than Fitch's estimate of 5 percent.
Fitch downgraded Sri Lanka's sovereign credit by one notch to 'B+' in February. The outlook was also cut to negative.
A program with the International Monetary Fund had helped ease balance of payments problems and the budget targets are also in like with the program Fitch said.
Fitch: Sri Lanka Revenue Reform a Step Toward Stronger Finances
Fitch Ratings-Hong Kong/Singapore-16 November 2016: Sri Lanka's budget for 2017 is broadly in line with the targets set out under its IMF programme, and contains a number of positive measures to boost the very weak revenue base. However, Fitch Ratings believes that the impact of the revenue reforms will depend on implementation; and some of the budget assumptions look optimistic, posing risks to the projections.
  The 2017 budget targets a fiscal deficit equivalent to 4.6% of GDP, down from an expected 5.4% in 2016 and 7.4% in 2015, when the deficit widened mainly as a result of sharp public-sector wage rises. Fiscal consolidation will be helped by tax reforms that should go some way to bolstering the weak revenue base, which is a key reason for the sovereign's weak fiscal finances.
  The reforms include a hike in the VAT rate from 11% to 15%, along with tax measures announced in the budget - such as a 10% capital gains tax that is scheduled to be introduced next year and an increase in the top personal income tax rate. The government also expects to generate more revenue from the simplification of the tax system and removal of some tax exemptions and concessions. The government projects that revenue will increase by close to 27% in 2017, pushing the revenue/GDP ratio up to nearly 15% of GDP from an estimated 12.9% in 2016.
Fitch views the new measures as a positive step, but there is a risk of a shortfall. The impact of the tax reforms will hinge on effective implementation. Moreover, the government's GDP growth forecast for 2017 of between 6%--7% is higher than what Fitch believes is likely, given the expected drag from fiscal consolidation. Our growth forecast for 2017 is around 5%.
  Efforts to restrain expenditure growth next year appear limited. Salaries and wages are to be increased at a less rapid pace than in 2016, but nominal expenditure is still forecast to grow by 17% to finance an ongoing infrastructure drive and meet the rising cost of debt-servicing and subsidies. Fitch expects spending may be cut back in the event that revenue disappoints.
  The government has a medium-term target of reducing the budget deficit to 3.5% of GDP by 2020, which is aligned with the IMF programme. It expects to achieve this deficit reduction mainly through a combination of further tax reform and efficiency gains in public expenditure. Some of the revenue measures announced in the 2017 budget are part of this medium-term fiscal strategy.
High government debt is, in any case, likely to remain a weakness in Sri Lanka's sovereign profile. Fitch estimates the level of debt at 76.5% of GDP as of end-2016 - which is significantly above the 'B' median of 52%.
Fitch downgraded Sri Lanka's sovereign rating by one notch to 'B+' in February, and placed it on Negative Outlook. A three-year IMF programme that began in June has helped to ease balance-of-payments problems, but long-standing weaknesses in public finances will persist without sustained commitment from the authorities. (Colombo/Nov16/2016)

jayathu


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Its good budget is trying strengten the economy but taxing everything which contributes to economic growth is not the answer. This will make the economy to shrink due to lack of economic activity.

One main principle which was harmful for the CSE was the removing the tax exemption on Unit trust for corporate. More than 90% of unit trust funds are from corporate. Now for corporate unit trust return is unattractive due to the fact that tax benefit is not there. As i also work in one of the top 20 companies sri lanka nw we are considering removing our funds from unit trust end of this month. We can basically put that cash in FD's and achive at least 1% more than prevailing Unit trust after tax return easily.
If corporate withdraw there cash from unit trust they must liqudate there funds from equity n capital market. Which will create negative impact on CSE and Capital market.

stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@jayathu wrote:Its good budget is trying strengten the economy but taxing everything which contributes to economic growth is not the answer. This will make the economy to shrink due to lack of economic activity.

One main principle which was harmful for the CSE was the removing the tax exemption on Unit trust for corporate. More than 90% of unit trust funds are from corporate. Now for corporate unit trust return is unattractive due to the fact that tax benefit is not there. As i also work in one of the top 20 companies sri lanka nw we are considering removing our funds from unit trust end of this month. We can basically put that cash in FD's and achive at least 1% more than prevailing Unit trust after tax return easily.
If corporate withdraw there cash from unit trust they must liqudate there funds from equity n capital market. Which will create negative impact on CSE and Capital market.

ok. please tell me how are they Tax for Units trust.

then i will explain....

samaritan


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Foreign Net sales at the CSE amounted to 79 Million today.

stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
next February Fitch will upgrade Ratings.

S & P
Moody's 
 also follow.

whats the problem of CSE compare with other markets. Actually CSE does not have a problem.  problem is on Government Financials.

2017 Budget improve Government Financial situations. 

then we can see Market P/E above 15 level.

think about company's in CSE. how many stocks P/E ratio around 6 level.

next year economy growing around 6-7 level. then CSE will reflect to that. this season is giving good opportunity collect stocks. use that.

jayathu


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
http://www.economynext.com/Sri_Lanka_hikes_tax_on_bond_interest_to_14_pct,_PAYE_exemptions_removed-3-6595.html

Unit trust income upto nw is tax exempted, from this budget they have taken it out for corporates.

stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@jayathu wrote:Its good budget is trying strengten the economy but taxing everything which contributes to economic growth is not the answer. This will make the economy to shrink due to lack of economic activity.

One main principle which was harmful for the CSE was the removing the tax exemption on Unit trust for corporate. More than 90% of unit trust funds are from corporate. Now for corporate unit trust return is unattractive due to the fact that tax benefit is not there. As i also work in one of the top 20 companies sri lanka nw we are considering removing our funds from unit trust end of this month. We can basically put that cash in FD's and achive at least 1% more than prevailing Unit trust after tax return easily.
If corporate withdraw there cash from unit trust they must liqudate there funds from equity n capital market. Which will create negative impact on CSE and Capital market.


property market will expand. whole economy will expand 

look 6-7% growing expect. that is create new opportunities

and they are "UT" get 86% previously they got 90%. and you worrying about this 4%

 "Which will create negative impact on CSE and Capital market. " this is false statement


 now property market has to pay capital gain, Bond market also has to pay 14% from there investment. in that case CSE is most benefited place

jayathu


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@stockback do u work fr Ravi?
Property market will expand???? Hw can that happen when this budget impose 10% capital gain tax on property.

Do u have any clue about corporate tax?

Upto nw if we get 100 bucks income from unit trust its nt tax liable, so end of day return is 100bucks. Nw after this tax exemption is removed we're liable to pay 28%tax on it. That's the corporate tax rate bracket that the company I work fr is categorized as. So our actual return is 78 bucks after this budget proposals are enacted.

N I don't get your 4% comment, what are u referring from that comment?
90% of the unit trust funds are from corporates n only 10% is from retailers.

jayathu


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
This unit trust issue is a small factor I can see effecting our equity market.

Rite nw due to immense taxes they have imposed entire economic activity will slow down if FDI doesn't come in kick start our economy. This govt upto nw have failed us in that(FDI) front. Our entire equity market run on sentiments, rite nw market sentiment is nt that gud. Clueless tax procedures n flip flopping policy decisions are making investors to stay away from the market.

stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@jayathu wrote:@stockback do u work fr Ravi?
Property market will expand???? Hw can that happen when this budget impose 10% capital gain tax on property.

Do u have any clue about corporate tax?

Upto nw if we get 100 bucks income from unit trust its nt tax liable, so end of day return is 100bucks. Nw after this tax exemption is removed we're liable to pay 28%tax on it. That's the corporate tax rate bracket that the company I work fr is categorized as. So our actual return is 78 bucks after this budget proposals are enacted.

N I don't get your 4% comment, what are u referring from that comment?
90% of the unit trust funds are from corporates n only 10% is from retailers.

please go through this. Page 6,  Future123 Published on different forum. 

https://drive.google.com/file/d/0B78FxyFENBnlQjE5b1FacWQtZkk/view


after that you can explain it with correct example.

stockback


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
please go through this also, year are 2013,2014,2015,2016 and 2017 Budgets 

jayathu


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Paying off the debt and taking the country forward should be the target. Not taxing every economic activity and paying off debt. There should be a right balance when putting out a budget.

After the budget cse is bleeding and bond market is very dull due to policies he implemented by blindsiding the private sector.

We'll see in near future some adjustments happening due to very short sighted policy decisions. Wait n see. You can't just tax everything and pay off debt and expect economy to grow.

Chinwi

avatar
Associate Director - Equity Analytics
Associate Director - Equity Analytics
by jayathu Yesterday at 10:51 pm


@stockback do u work fr Ravi?

If so he will become a Minister in future Cabinet.
They say a poor helper  kolla of Athulathmudali became a super rich Minister and took the  entire country to hell .

Property market will expand???? Hw can that happen when this budget impose 10% capital gain tax on property.

Why not ? those are the  secret theories used by Yahapalana Government for past 22 months to bring this much of success.

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