gossip lanka

Tax cuts to give impetus to stronger corporate earnings – CAL

Capital Alliance Securities (CAL) research in a note to investors stated that the number of tax reliefs, which were announced at the first cabinet meeting under the newly elected Sri Lankan President Gotabaya Rajapaksa is likely to trigger an immediate and substantial boost in consumer spending.

However, given the extent of the cut, especially in VAT and NBT, the research unit believes that the devil might be in the details. As such, CAL awaits more clarity on the nature and extent of the announced tax cuts prior to formulating an overall view.

“The tax cuts will certainly, however, be seen as significantly market positive. Nonetheless, given the lack of information at this point – we advise our clients to play the ‘Sure Winners’ viz a viz a market-wide momentum-trade,” CAL noted.

Keeping in line with President Gotabaya Rajapaksa’s manifesto, a number of tax relief initiatives were announced on Wednesday, at the first cabinet meeting of the new government.

Accordingly, it was announced that the administration would do away with National building tax (NBT) on household goods, Withholding tax (WHT) on interest and debt tax, PAYE tax, government taxes imposed on religious places, with immediate effect.

The cabinet also decided to reduce Value Added Tax (VAT) from 15% to 8% and to increase the tax-free threshold for VAT from LKR 1 Mn per month to LKR 25 Mn per month.

The Cabinet further decided to reduce the telecommunications levy by 25% and the income tax on the construction industry has been reduced from 28% to 14%.

The research unit believes that Banks and Financial services: Earnings will see an immediate boost upon the removal of Debt repayment levy and NBT. WHT removal may also see borrowing costs reducing over the medium term.