COLOMBO, Feb 2 (Reuters) - Sri Lankan shares fell more than 2 percent on Monday to their lowest in five months, led by blue chips on concerns over future earnings after the new government imposed a retrospective 25 percent 'super gain tax' in its supplementary budget.
The market has lost 4.9 percent in two sessions after the government on Thursday announced a budget that imposed new taxes on cash-rich firms to pay for pay hikes for workers and tax cuts on key commodities, hoping to woo voters as it approaches a parliamentary election.
At 0803 GMT, the main stock index was 2.24 percent, or 160.90 points, down at 7,019.15, its lowest since Sept. 2, 2014, Thomson Reuters data showed.
"There is panic selling after the retrospective tax plan," said a stockbroker on condition of anonymity.
"Some funds have triggered the selling and the market can't hold at these levels. The market is waiting for some direction on political stability after the parliamentary elections once the new government's 100 days are over."
Finance Minister Ravi Karunanayake imposed a one-time super gain tax of 25 percent on individuals or companies that earned more than 2 billion rupees in profits in 2013/2014.
New President Maithripala Sirisena had said he would call for parliamentary polls after April 23 when the new government completes its 100-day programme which has aimed at establishing independent commissions and eliminating corruption.
Analysts said the market would trade lower in the coming days on selling in top conglomerate such as John Keells Holdings , Dialog Axiata, Sri Lanka Telecom, Ceylon Tobacco Company and Nestle as they would have to pay the new tax.
Prime Minister Ranil Wickremasinghe on Thursday said the government had blocked three casino projects approved by the previous administration, including a $400-million project by Australian gaming mogul James Packer's Crown Resorts Ltd and another by John Keells.
Ceylon Tobacco was 2.05 percent weaker, John Keells fell 5.94 percent and top mobile phone operator Dialog Axiata lost 6.67 percent.
Analysts, however, expect the raft of tax concessions and salary hikes in the budget to increase consumers' disposable income and help the market rally over the long term.
Turnover was 1.01 billion rupees ($7.64 million).
Sri Lankan rupee forwards were steady amid dollar selling by banks, though policy uncertainty weighed on the currency, dealers said.
One-month forwards were trading firmer at 133.70/80 per dollar at 0822 GMT, little changed from Friday's close of 133.67/70.
One-week forwards were trading at 133.30/50 per dollar, compared with Friday's close of 133.50/60. ($1 = 132.2000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)