Bourse boost for Treasury

• (State coffers get Rs. 2 b windfall year to date from share transaction levy in tandem with boom in stock market activity)

Apart from constant global spotlight, the Government is also directly benefiting from the booming and bustling Colombo bourse with Treasury getting a windfall revenue of Rs. 2 billion this year so far from the levy imposed on each transaction.

As at last week the year to date total turnover at the Colombo stock market was a staggering  Rs. 450.3 billion and the amount earned by the Government by way of the 0.4% share transaction levy (0.2% on each side – seller and buyer) is over Rs. 1.8 billion.

In comparison, last year Treasury received only Rs. 569 million based on a Rs. 142.4 billion full year turnover. The 2010 January to October last week reflect a staggering 216% rise from 2009 full year collection. Analysts said that with one more week to go for October and two more months for record breaking 2010 to end, the Treasury’s windfall from the share transaction levy will be much higher for the year.

They said that the levy is most effective as it applies to both seller and buyer and is immediately charged upon a transaction irrespective of whether the trade yields a capital gain or not.

Unlike in capital gains where the individual has to declare and collection has time lag as well as administrative cost, the share transaction levy is directly remitted to the Inland Revenue by the Colombo Stock Exchange. In that context there is almost zero administrative cost for the Treasury.

Apart from Government levy of 0.2% on each transaction, a 0.072% is also charged as a SEC Cess. SEC is estimated to have collected around Rs. 300 million whilst as at end 2009, the balance lying to the credit of Cess Fund was Rs. 1.2 billion.  This is in addition to Rs. 253 million balance in the Settlement Guarantee Fund.

The transaction cost at Colombo bourse is 1.02% for deals up to Rs. 50 million. For deals above Rs. 50 million is negotiable but has a minimum floor.

The breakdown of cost for deals below Rs. 50 million is as follows. Brokerage Fees - 0.640%

CSE Fees - 0.084%, CDS Fees - 0.024%, SEC Cess - 0.072% and Share Transaction Levy - 0.200%.

For deals above Rs. 50 million is Minimum brokerage (floor) - 0.200%, CSE Fees - 0.0525%

 CDS Fees - 0.0150%, SEC Fees - 0.0450% and Share Transaction Levy - 0.200%.

More attractive valuations in the stock market now

Post correction in recent weeks, the Colombo stock market this week offers more attractive valuations for investors, Acuity Stockbrokers said.

“The bourse seems to have steadied its course with investor interest in blue chip stocks driving market activity. The market correction has made valuations more attractive for strategic investments and bargain hunters to pick up stocks backed by sound fundamentals,” it said.

Acuity pointed out that the upcoming IPOs should give impetus to investor sentiment, while corporate earnings for the quarter ended September 2010 have started flowing in and is expected to have a positive impact on the market, given the positive macro economic outlook.

The week ended on a positive note as the ASPI gained 59.13 points to close at 6685.99 up by 0.9%. Milanka closed at 7270.80, rise by 1.7% with a gain of 121.54 points.

Despite marginal addition to indices the market turnover was at peak midweek at Rs.5.2 billion. The accumulated turnover at the end of the week was Rs.13.5 billion down by 28% week on week. Market Capitalisation gained by 0.90% to record at Rs.2211.46 billion in comparison to Rs.2191.84 billion during the previous week.