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by Ravi Ladduwahetty

Chairman of the Colombo Stock Exchange Eraj Wijesinghe has called upon the Government to exempt the stock brokering community from the Value Added Tax, which he described as a deterrent to the industry, which was now picking up after a lapse of six years.

Stock brokers were hitherto exempt from VAT and now the Government has imposed it on the stockbrokers as well which will be a drawback to the development of the industry which the industry is proposing, Wijesinghe told the Daily News last week.

This follows the Government's notice published in the media by Treasury Secretary Charitha Ratwatte under the heading:" Proposed changes in the Value Added Tax (VAT) Act- Chapter IIIA - VAT on Financial Services" on June 26 that from July 1st 2003, liability to VAT will be extended to any person providing such financial services as are defined in Chapter IIIA of Act No. 7 of 2003. However, if the value addition, (defined in the said Chapter as Profits + staff remuneration for the relevant period), on such financial services does not exceed Rs. 75,000 in any month, such person will not be liable to VAT on such financial services.

Where persons who provide financial services, also have other businesses that are taxable, exempt or zero rated under any other provisions of the VAT Act, any value addition as is attributable to such taxable, exempt or zero rates supplies may be deducted from the total value addition of such person in arriving at the liability under this Chapter.

Any tax credit accruing on such businesses will not be granted under this Chapter. Any person liable to pay VAT under Chapter IIIA on the above basis, whether or not registered with the Central Bank of Sri Lanka as a financial institution, should inform the Commissioner General of Inland Revenue (CGIR) of his tax liability before July 10, 2003.

Those who are not yet registered should take immediate steps to obtain a registration number from the CGIR.

The notice under the subheading : Finance Leasing Agreements under the Finance Leasing Act said:" With effect from July 1, 2003, input tax credit entitlement on the assets acquired to be made available under finance lease agreements will be restricted to 10% in all cases.

Wijesinghe, who is also Group Chairman/Managing Director of Bartleet and Co. Ltd said:" Our position is that we have elaborate plans to develop the capital markets next year and also included in this program is not only equities but also debt securities as well and this will be a drawback to the development of the industry and the levy of the VAT on share trades will add to the cost which will have to be passed on to the buyers and sellers, he said.

He said that the levy of the charges under VAT on share trades was not going to boost the state coffers to that extent but that the levy of the charge would stifle the industry and especially at a time when Colombo was being bandied about as a financial hub in South Asia.

The CSE Chief said that the exchange was looking positively at plans for expansion into locations such as Jaffna, Batticaloa and Kurunegala which was meant as a strategy to create a share owning democracy and that promotion work in this regard was to start shortly.

Chairman of the Stock Brokers Association and General Manager/ CEO of HNB Stock Brokers Ltd Deva Ellepola said that there was a certain element of ambiguity in the Government notice released by Treasury Secretary Charitha Ratwatte as it has not been gazetted yet.

However, he said, that it was ludicrous for the stock-brokering companies industry to be classified under this system for the levy of the 10 percent VAT as these were not financial institutions such as banks which were holding funds from the public as deposits and that stock brokering companies were merely facilitating the transactions between the buyers and sellers for which commissions were paid.

He said that the Government's decision to levy the VAT from stock brokers was in contravention to the Securities and Exchange Commission (SEC) appealing to the stock brokers to bring down the charges which have been effected and that by a substantial 13 percent.

This is an absurd situation where we also have to pay the 35 percent income tax and if the VAT has also to be added, we will have to pass it on to the clients, which will undoubtedly stifle the industry, he said.

He cited examples of Malaysia and Korea where their Governments provided substantial funding for the development of capital markets and that there was no encouragement from the Sri Lankan authorities in this regard.

We appealed to the Securities and Exchange Commission (SEC) for a similar line of funding and we were told to proceed with our own funding as far as equities and debt trading goes, Ellepola said.

He said that Internet Trading was also under consideration by the Stock Brokers Association to make the market more accessible as no Government funding was forthcoming.

So, it is ridiculous that the Government has decided to levy the 10 percent VAT on the stock broking community, he said.

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