Sri Lanka to impose capital gains tax on stocks, Minister says

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June 28 (Reuters) – Sri Lanka intends to impose a capital gains tax on profits from equities, a senior government minister said late on Monday, as the government attempts to shore up its finances to qualify for an IMF loan.

Sri Lanka’s cabinet approved reintroducing a capital gains tax on land early this month, but has not said whether it would be imposed on profits from buying and selling equities.

“We don’t know the details of it right now, but there will definitely be a capital gains tax on land transactions plus the stock exchange,” Patali Champika Ranawaka, a development minister, told a Foreign Correspondents’ Association forum.

The government is in the process of drafting new legislation for a capital gains tax with technical inputs from the International Monetary Fund.

Reimposing such a tax would be part of government moves to raise revenue, which it has promised the IMF to do in return for a $1.5 billion, three-year loan to support its economic reform agenda.

The capital gains tax could be around 10 percent and was likely to be imposed before the 2017 budget presentation in November this year, Ranawaka said.

Stockbrokers expect the capital gains tax to hit share transactions and discourage new small investors from entering the market.

Since Prime Minister Ranil Wickremesinghe announced the plan to reimpose capital gains tax on March 8, foreign investors have sold a net 5 billion rupees ($33.78 million) worth of shares.

Wickremesinghe abolished a 25 percent capital gain tax on land in 2002, which had been reduced from as high as 45 percent in 1978.