COLOMBO, Aug 24 (Reuters) - Sri Lanka will not go ahead with a proposed tax on profits from share trading that was planned as part of a major tax reform bill, a top government official said, after the move dented investor sentiment and drove down the main share index.
The island nation’s principal share index has shed 4.1 percent since July 27 through Wednesday and has fallen in 16 out of the past 18 sessions due also over fears about the proposed tax.
“There will be no change on the taxes levied in stock trading. The share transaction levy will remain as the same,” Junior Finance Minister Eran Wickramaratne told reporters in Colombo on Thursday.
Currently, trading of shares at the Colombo Stock Exchange is subject only to a transaction levy of 1.12 percent and there is no tax on the profit made.
“This news will give back energy to the market,” said Hussain Gani, deputy CEO at Softlogic Stockbrokers. “Uncertainty that has hindered the sentiment will get cleared and we will see much better foreign, local, and high networth investor participation.”
Sri Lankan stocks were 0.1 percent firmer at 6,389.63 as of 0849 GMT.
The new tax reform bill, which will be presented in parliament on Friday, was expected to impose a 28 percent tax on stock trading, defined under the bill as shares which will be sold within a short period, market analysts said earlier.
The Inland Revenue Bill will be presented with amendments after the country’s top court ruled that the major tax reform cannot be passed into law in its current form.
The bill was proposed in May to meet conditions set by the International Monetary Fund for a $1.5 billion loan it approved last year.
The bill is expected to support fiscal consolidation, make the tax system more efficient and equitable, and generate resources for social and development programs, the IMF said earlier. (Reporting by Shihar Aneez; Editing by Biju Dwarakanath)