Found time to write this now for you so YOU CAN BE AWARE AND ACT SMART. Folks, there are 2 budget related important educational matters I like to focus on
1) Various Taxes imposed and it's effect to CSE related shares
2) CSE situation on Monday and how I would react
THE 4 MAIN TAXES TO BE EDUCATED ON
I purposefully will not mention any direct companies names as some people can panic more if I do. So this is a general education report.
1) One-time Surcharge Tax of 25%
Step 1: Effects who? Persons or companies with taxable income over LKR 2 Billon for the FY2020/2021
Step 2: This should be taxed at Company level and not Group level as I gather. I think around either 35 or 45 companies at CSE might be effected by this depending on how they calculate.
Step 3 : Though this is negative for many companies, clearly note
a) This is ONE TIME payment from the profits of past financial year ( from what I gather)
b) Profits are already made. Honestly some companies who made enormous profits during Covid , deserve to pay this to do its part for an ailing economy.
c) It's not like these companies are Poor or short of cash. They will make it back a lot more in 2022FY.
Step 4 : The only bigger issue I see is, this can effect some December quarter dividend paying companies which might hold back on paying dividend until this payment is done and dusted and cash flows improve.
Step 5: These kind of extra taxes are not new. It happened in 1960s, 1970s,1980s,1990s,2000s . In 2015, the very same kind of a tax ( called "SUPER GAIN TAX") at same rate of 25% was imposed.
Some Companies who paid the tax then are now multiple times stronger than 2015. So there should be no worries with this tax too.
Step 6 : Summary
Though this appears negative , this will not effect these strong companies for medium term as they are already cash rich and can easily make the tax back in 1 quarter of profit.
2) VAT Increase from 15 to 18%
Step 1 : Only Valid from 01 Jan 2022 to 31 Dec 2022
Step 2 : Who is effected? Banks, Financial service and Insurance companies
Step 3 : The increase of 3% cannot be passed onto the customer
Step 4 : Summary
Though this is negative, it is ONLY for 1 year, and increase is 3% only. Not major. I would not worry about it too much. Only a small reduction on FY2022, eps and NAV growth.
3) Special Good and Services Tax ( GST)
Effects who? Telecom, Alcohol , Tobacco and Gaming and Betting
Step 2 :
This was proposed in 2021 budget. It just going to be implemented from January 2022 onwards
Step 3: Summary :
This will be overall negative for those companies , but they might combine several other existing taxes and charge 1 tax. I hope Telecom sector tax is reasonable as it affects almost the whole population of Sri Lanka.
4) Social Security Contribution Levy of 2.5%
Step 1 : Out of every other tax, this is the one which concerns me most.
Step 2 : Biggest concern is, companies can pass this onto the Customers. Cost of goods and services in Sri Lanka can further go up as if current situation in country is not bad enough.
Step 3 : I don't know yet this is applicable to Banks and Finance sector
Step 4: Charging Tax over Turnover is a much bigger amount vs Charging Tax over profit. Some companies have Rs 100 Billions of turnover.
Step 5 Summary:
This levy will probably not effect companies much. But it I fear it can be passed down to to public/customers. How this is exactly going to be implemented is not known. But out of all taxes proposed, this one is my biggest concern as it can have wider social impact.
* Cigarette and Alcohol taxes are increased too. But they are raised by not a huge margin. These tax hikes are expected every year anyway. So nothing to write a lot about.
SUMMARY ON BUDGET :
1) I already said this budget is not going to be people friendly in my last post.
2) It is a fact that the County is in very bad financial standing, and Government needed to find money somehow.
3) Instead of taxing people more ( as if they are not suffering already), they found ways to tax the richer. I kind of find the method okay.
4) But Social Security Contribution and special GST on Telecom is going to possibly hurt the public most. I hope this gets attention at
5) Though the budget was not bad ( it could be worse), I find this budget not a Visionary one. It has not addressed any major issues and concerns in the country ( like Food , Gas ,Fuel shortages and escalating cost of living , or needless to say giving any sort of direct relief to public )
6) Some sector will have positive impact from the budget ( direct and indirect) and others negative which need to be analyzed later when I find time.