Sri Lanka stocks plunge after budget taxed banks, big firms

ECONOMYNEXT – Sri Lanka market fell 2.5 percent at the opening on Monday (15), as it started trading for the first time after Finance Minister proposed a 25 percent retrospective tax surcharge on firms that earned over 2 billion rupees in 2020/21 and 3 percent increase on VAT for banks, insurance, and financing firms.

The main share index ASPI plunged to 10,372 immediately after it opened and dropped to over 2 percent but recovered slightly. At 1130 hours, the index was down 0.13 percent to 10,652, bourse data showed.

The fall was led by banks.

“This was expected and banks were worried about the tax,” a broker said.

“But we believe it will recover after some time as it was the same in 2015 when the last government came up with a similar retrospective tax”

“But overall, budget has not spelt out any direction. Investors are still waiting for clarity.”

The budget for 2022 proposed a “one-time tax surcharge of 25 percent on persons or companies with taxable income over 2 billion rupees for the year of assessment 2020/2021.

The Finance minister said 62 individuals and companies under this category are expecting to generate 100 billion rupees through this tax.

A value added tax (VAT) was increased to 18 percent from the current 15 percent on banks and financial service providers under supply of financial services by specified institutions with effect from Jan.1, 2022, targeting 14 billion rupees from the proposal.

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