Sri Lanka National Budget - 2016 special concern in Capital Market here we point out that,
Capital markets remain an untapped resource in Sri Lanka. Developedcapital markets offer businesses better access to low cost long term financing which is vital for expansion and growth of businesses. Our capital markets are marred by the limited use of technology and a lack of adequate benchmarks of good governance.
Honourable Speaker, you will no doubt be aware that the Securities and Exchange Commission (SEC) has been under fire in the last 10 years due to the inability to infuse a sense of discipline into the market participants of the stock exchange. Our government is keen to arrest this situation and I believe the sentiments of the investor community has certainly improved in the last few months. It is in this background, given the government’s commitment to good governance and reforms, that reforms of the capital market will follow.
Honourable Speaker, the Colombo Stock Exchange (CSE) is still a member-owned entity and a not for profit entity. If one looks at Stock Exchanges of the world that has performed well, they are demutualised.
Demutualisation ensures that the exchange actually looks into the issues of the market participants rather than satisfying financial intermediaries. This will also ensure greater transparency, better use of technology to ensure transparency and lower trading costs. As such, since the government is dedicated to creating a fair and efficient environment that benefits its participants, it is proposed to conclude the demutualisation process of the CSE during 2016.
Honourable Speaker, this government is committed to creating the enabling environment in which the stock market can operate efficiently and effectively. A proper regulatory framework is the key in facilitating growth in the stock market. As such, it is proposed that Securities and Exchange Act be revised to address the regulatory deficiencies in the market.
Honourable Speaker, it is important that businesses be privy to low cost capital with longer tenures, if expansion of their activities are to be promoted. The corporate debt securities market in Sri Lanka has been active in raising almost Rs. 50 billion in 2014 which is a fourfold increase over 2012. As such, to facilitate the expansion of the corporate debt securities market, it is proposed to waive the income tax and withholding tax applicable to those activities into 2016.
Honourable Speaker, we do not have a trading platform for the trading of government securities. As such, it is proposed to set up a Bond Clearing House primarily for transactions in government securities which could then be extended to other instruments including the corporate debt securities known as debt exchanges. The Bond Clearing house will be established by the Central Bank. Once the Bond Clearing House is fully operationalised, it is proposed to be governed by an independent Board of Directors. I propose to allocate Rs.500 million from the Consolidated Fund to establish the trading platform under the supervision of the Central Bank.
At the same time, the Share Transaction Levy which charges 0.3 percent from the buyer and seller on each share transaction will be removed with a view of encouraging activities in the share market so as to boost the sagging movement of share transactions. Further, as an additional measure, the stamp duty on share certificates will also be removed.
Honourable Speaker, volatility in the stock market has resulted in many of the stock brokers facing significant issues. It would appear that the sustainability of stock brokers themselves is important in ensuring the long term development of the Capital markets. As such, I encourage the Stock Brokers to merge to strengthen their capacities and capabilities.
Honourable Speaker, in the commercial and financial markets the integrity of the data is key to ensuring an efficient operation of the market. Accounting and auditing standards play a key role in ensuring credibility of the information provided. Among the institutions which will be strengthened, is the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), engaged in preparing Sri Lanka Accounting and Auditing Standards which are used by all specified business entities in the country, both listed and unlisted.
Honourable Speaker, the work of the SLAASMB however, is constrained by inadequate technical and financial resources. Previous regimes have neglected the needs of the SLAASMB. We will also review and amend the relevant Act to expand its scope and coverage. Therefore, it is proposed to allocate Rs.100 million to the SLSAMB to strengthen and develop the institution.
Honourable Speaker, in order to provide capital to real estate and infrastructure development and to enable small investors to directly benefit from the growth of the real estate sector, it is proposed to introduce Listed Real Estate Trusts (REITs). Transfer of real estate assets to a REIT structure that distributes 90 percent or more of income to REIT unit holders will be exempted from Stamp Duty.
Moreover, with the change in demographics, it would also be best to consider the introduction of “Reverse Mortgages”.
Honourable Speaker, at present Sri Lanka has been raising only USD denominated bonds in the international market. I propose that going forward, we should examine non-traditional bond markets including the Chinese Yuan and Sukuk bonds with the aim of reducing our cost of borrowings.
Honourable Speaker, SMEs find it difficult to list in the stock exchange given their inability to comply with the Stock Exchange’s regulatory requirements. As such, it hampers the SME’s access to long term relatively cheap finance. Thus, to expand the options available for SMEs’ access to finance, it is proposed to create a new SME board on the Colombo Stock Exchange with less stringent compliance requirements for SME listings. This will also provide a comfortable exit strategy for the Venture Capital firms that have invested in SMEs.
I propose CSE to play an active role to attract foreign companies to be listed in the Exchange. Local companies listing in the CSE will receive tax concessions for 2 years while the concessions will be extended to 3 years if listed in a foreign stock exchange such as, London, Singapore, Hong Kong, Mumbai. At the same time I encourage foreign companies to list in the CSE (dollar listing).
Market capitalisation at present is Rs. 28 billion. With all the measures proposed we expect the market capitalisation to reach Rs. 50 billion.
Sri Lanka Capital expetation in Budget - 2016
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Lanka Stocks
