Economynext on Saturday 5th reported that capital gains tax may be on the cards quoting the local daily mirror newspaper. This comes along with other tax reforms amidst the BOP crisis that Sri Lanka is facing and IMF has been approached for help. It is usual for IMF to set certain conditions before providing such a support.

It was reported that capital gains tax may be charged on gains on shares and land sales. It was also reported that the proposal was under opposition from certain members of the cabinet. It should also be noted that the share transaction levy was done away with in the recent budget, which was a levy on every trade regardless of it being a profit or loss.

For most new and retail investors in the CSE, the capital gains tax is something new and looked upon as something negative. Of course, the idea is to tax profits which till now had been tax free. Although the premier hinted at this some time back and now new reports have emerged, there are various points that are yet unclear.

  • How much will be charged – will the government start small and go big
  • How will it be charged – will it be charged on every closed position or on an annual basis
  • What will be considered the cost – Last paid price, first paid price or the average cost
  • Can tax refunds be claimed

The development also comes at a time when the ASI has shed around 20% from its recent peak and investors have seen heavy losses in their portfolios. Investors have been asking the question on how the government will collect tax when the investors are making losses. It is evident that investors have been frustrated over the continued decline of the index where they have struggled to make any kind of profits but have been making losses despite the companies have generally reported good profits. Valuations are at very low levels with some companies trading below 4x P/E

Market being at a low also provides a great opportunity for the government to maximize its tax revenues once the market recovers.

 

 

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About Author: LankanInvestor