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08 March, 2016 09:32 AM Source: Financial Times - Sri Lanka
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An already-dampened Colombo Stock Exchange (CSE) could be severely hit if an unforeseen directive to impose the Capital Gains Tax is implemented by the Government after a hiatus of 29 years, a senior official warned yesterday.

CSE Chairman Vajira Kulatilaka told the Daily FT that the perceived impact of capital gains tax after many years of absence would be far larger than the actual impact, likely resulting in a further decline of trading activities on the Bourse.

“People will definitely have a negative perception of this and that impact is going to be larger than the real impact of the tax and how much people will be taxed due to this,” he stressed.

On Friday (4) due to continual pressure to promote fiscal consolidation the Cabinet held a special meeting and approved new tax reforms. The possible reintroduction of the Capital Gains Tax after three decades was the highlight of the meeting.

The move came as a surprise in the backdrop of Bourse earnings dwindling over the past few months. CSE’s market capitalisation as of last week amounted to Rs. 2,588 billion, down by 12% from Rs. 2,938 billion as at end 2015. The All Share Index and S&P SL 20 Index were down by 12% year-to-date as well.

Noting that Cabinet did not consult CSE officials before taking a decision which would directly impact the stock market, Kulatilaka said more clarity on this issue was needed without further delay.

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