How listed companies would be affected by the budget


Budget 2013 is a capital market friendly budget making policy reforms clearer and simpler, Bartleert Religare Securities said in a report outlining how individual listed companies would be affected by the budget proposals.

"The budget proposals for 2013 continued to be welfare-oriented and forecasted an ambitious 5.8% deficit (down from a forecasted 6.2% in 2012). The total proposed revenue for the year 2013 amounts to LKR 1,278bn while expenditure amounts to LKR 1,785bn, of which LKR 1,267bn is accounted as recurring. Overall, the 2013 Budget has a series of policy reforms, which we see as clearer and simpler, development oriented and positively capital markets friendly. The Government has forecasted revenue at 14.5% of the GDP while the total expenditure is set at 20.5%," the report said.

Impact on listed companies:

"Income tax is exempted on interest income from investments made on or after 1st January 2013 in quoted Corporate Debt securities and Municipal Bonds issued with the approval of the general Treasury. The proposal seeks to increase the borrowing capacity of the Municipal Authorities and if the municipalities go through a rating process, this would improve the transparency of the expenditure and projects.

For Unit Trust Companies, the current rate of taxation of 28% will be reduced to 10%.

The tax rate on profits from poultry farming will be reduced to 10%. We believe Bairaha Farms PLC (BFL), Ceylon Grain Elevators PLC (GRAN) and Three Acre farms PLC (TAFL) will benefit from this move.

The sale of any product manufactured in Sri Lanka for payment of foreign currency will be deemed as exports and profits from export companies will be taxed at a concessionary rate of 12%.

Tax payable by any company listing its shares on or after 1st April 2013 and offering more than 20% of its shares to the general public will be reduced by 50% for the year of assessment in which the shares are listed and for the two years of assessment immediately. This is applicable even to the export or any other companies that will be taxed at concessionary rates.

Stamp duty on transfer of stocks transferred by any person to a margin trading account and vice versa will be exempted.

A presidential task force will be appointed to co-ordinate and implement a capital market development Plan.

The profits of any mini hydropower project or any other alternative energy source will be taxed at a concessionary rate of 12%. Vidullanka PLC (VLL), Vallibel Power Erathna PLC (VPEL), Panasian Power PLC (PAP) et al will be likely beneficiaries from this move.

The cost of the establishment of Stockbroker back office systems to be compliant with the CSE requirements in relation to the risk management system will be allowed for a full deduction for tax purposes.

A wholesale or retailer making a quarterly turnover not less than LKR 500mn will be liable to be registered for VAT. However, VAT is chargeable on liable supplies only. Retailers Cargills Ceylon PLC (CARG), Ceylon Cold Stores PLC on Keells Super outlets (CCS), Richard Pieris PLC (RICH), Laugfs Gas PLC (LGL) will have their already thin margins eroded further by this move.

The present 20% rate of telecommunications levy will be reduced to 10% in respect of services provided through internet broadband. Dialog Axiata (DIAL) and Sri Lanka Telecom (SLTL) would emerge listed beneficiaries.

Duty on imported liquor, beer and spirits will be increased further. This would make the locally manufactured spirits of Distilleries Lanka PLC (DIST) and Lion Breweries PLC (LION) push more volumes.

Cess will be increased or imposed on import of Lubricants. However, the item only says Lubricants and not base oil. This would impact the smaller lubricant sellers whilst protecting the two big producers who import base oil and blend them locally. Chevron Lanka Lubricants (LLUB) and Lanka Indian Oil PLC (LIOC) will benefit from this while Laugfs Gas PLC (LGL) may take a hit on margins.

DFCC and NDB banks will raise up to USD 250mn each to provide development funding. As an incentive, the government will underwrite the exchange risk for the borrowings. The interest income from such lending will also be tax exempt. The government will facilitate such borrowings by floating domestic bonds enabling these two institutions to invest their surplus funds until loan proceeds are fully utilized. The government in this occasion, solves the long end liquidity mismatch for these two institutions. DFCC and NDB will in our view, benefit greatly from this move," Bartleet Religare Securities said.

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