2017 Budget - Highlights The Democratic Socialist Republic of Sri Lanka 70 th Budget Since Independence 10 th November 2016

Transcription

1 2017 Budget - Highlights The Democratic Socialist Republic of Sri Lanka 70 th Budget Since Independence 10 th November Budget at a Glance Government Revenue and Grants for 2017 is projected to grow by 26.5% YoY to Rs.2,098bn; more than twofold increase compared to 12.2% revenue growth expected for Of the revenue forecasted for 2017, 86.8% (Rs.1,821bn) is to be raised in the form of tax revenue while 9% in the form of non-tax revenue (Rs.189bn),and the balance in the form of grants. Government Expenditure is projected to increase by 17% YoY to Rs.2,723bn of which 74.3% (Rs.2,024bn) is for recurrent expenditure which includes salaries & wages, interest, subsidies & transfers, and other goods &services. 26% (Rs.708bn) will be used to finance education, health and infrastructure development. Budget Deficit is forecasted to decline by 6.7% YoY to Rs.625bn during 2017; while the Budget Deficit (excluding Grants) as a percentage of Gross Domestic Product (GDP) is forecasted to contract to 4.6% compared to 5.4% in 2016 (revised). Government Revenue Budget Summary Total Revenue and Grants 2,098 +/- YoY Growth 26.5% Revenue and Grants/GDP 15.5% Total Expenditure 2,723 +/- YoY Growth 17.0% Expenditure/GDP 20.2% Budget Deficit (625) +/- YoY Growth -6.7% Budget Deficit/GDP 4.6% Composition of Government Revenue 9% 9% 4% 0% 4% 1% 14% 16% 2017 For 2017 Tax revenue is targeted at Rs.1,821bn compared to Rs.1,432bn in the previous year. 19% 21% 2016 Tax on Goods & Services will remain the major contributor (51.2% of the total government revenue) with a forecasted growth of 27.2% YoY to reach Rs.1,086bn. Tax on external traded is expected to grow by 17% to Rs.400bn while Income Tax is expected to grow by staggering 41.9% due to the revised corporate tax structure and increase in Withholding Tax. Non tax revenue is forecasted at Rs.189bn; growth of 31.3%YoY. 51% 52% Income Tax Taxes on Goods and Services Taxes on External Trade Non Tax Revenue Provincial Councils Tax Sharing and Devolved Revenue Grants Rs.Bn 2,000 1,500 1,000 1,264 1,050 Government Revenue 1,658 1,478 1,284 1,432 2,098 1, F Total Revenue and Grants Tax Revenue Non Tax Revenue Capital TRUST Securities (Pvt) Ltd Page 1

2 Table 01: New Revenue Proposals to Broaden Tax Revenue Proposal Rs.Mn 1 Corporate Tax revisions 32,000 2 Revisions of Withholding Tax 26,000 3 Transferring public institutions unutilized accumulated funds 20,000 4 Excise Duty revisions on motor vehicles 14,000 5 Financial Transaction Levy on transactions of banks and financial institutions 8,000 6 Court Fee for filing a case 7,500 7 Telecommunication Levy revisions 5,000 8 Excise duty revisions on Ethanol 5,000 9 Capital Gain Tax 5, Revision of Embarkation Levy 4, Carbon Tax on motor vehicles 4, Excise duty on Non-potable alcohol 3, PAYE Tax revisions 2, NBT revisions 1, Revision of allowable evaporation for spirits ESC on imported motor vehicles SIM Activation Levy 200 Total 140,000 Source: Budget speech, 2017 Government Expenditure Rs.Bn 2,500 2,000 1,500 1,855 1,382 Government Expenditure 2,153 2,328 1,648 1,842 2,723 2,024 Government Expenditure 41.6% % 1, ,842 2, F Total Expenditure Recurrent Expenditure Public Investment F Recurrent Expenditure Public Investment Recurrent expenditure is forecasted to grow only by 9.9%. As a percentage of GDP it will remain the same at 15%. Composition of Government Expenditure Cost of salaries and wages is the second largest recurrent expenditure accounting to 24.8% (Rs.675bn) and is forecasted to grow by 4.7%. Interest cost is expected to become the largest recurrent expenditure and is set to increase by 12.8% to Rs.680bn. 5% 21% 16% 5% 18% % 28% 7% 7% 2017 Expenditure on public investments is targeted at Rs.708bn a massive growth of 41.6% compared to 3.3% decline in expected in This as a percentage of GDP will increase from 4.1% in 2016 to 5.2% in 2017 which is considered as an investment for the future. 17% 26% 25% Salaries & Wages including Provincial Councils Other Goods & Services including Provincial Councils Interest Subsidies and Transfers Education and Health Infrastructure Development Capital TRUST Securities (Pvt) Ltd Page 2

3 Salaries & wages together with interest expenditure which are unavoidable costs of the government accounts is set to reduce to 64.6% of total government revenue and grants in 2017, compared 75.3% in Thus, budget deficit as percentage of GDP would reduce. Cost of Salaries & Interest Expence as a Percentage of Total Revenue 72.9% 74.9% 75.3% 64.6% Deficit Financing Budget deficit in 2017 is expected to reduce by 6.7% over 2016 to reach Rs.625bn due to increased contribution from Income Tax revenue. Budget deficit as a percentage of GDP is expected to reduce to 4.6% in 2017 compared 5.4% forecasted in 2016 (revised). With higher expenditure budgeted with an ambitious revenue target, achieving a budget deficit of 4.6% of GDP in 2017 can be a great challenge with a risk of revenue shortfall F % of GDP Budget Deficit (Rs.bn) F In financing the 2016 budget deficit Gross Foreign Borrowings is to reduce by 16.7% to Rs.450bn. Due to higher debt repayment of Rs.178bn compared to Rs.145bn in 2016; deficit financing through foreign borrowings will reduce by 31.1% to Rs.272bn. Hence, foreign borrowings will finance only 43.5% of the budget deficit in 2017 compared to 59% in (516) (591) (675) (670) Deficit Financing (Rs.Bn) (625) There is more emphasis on domestic borrowings to finance the budget deficit; domestic borrowings are set increase 28.4% YoY to Rs.353bn. Its contribution in bridging the deficit will be 56.5% compared to 41.0% in The ratio of Domestic Financing to Foreign Financing will increase from 0.51x in 2016 to 0.78x in This would add more pressure on market interest rates F Total Domestic Financing Total Foreign Financing Capital Market Development and Incentives To introduce a new Securities and Exchange Act during the first quarter of 2017, which will provide the Securities and Exchange Commission (SEC) with enhanced enforcement capacity, and greater flexibility in operations. Introduce the Demutualization Bill which has been a long felt need during the first quarter of 2017 Implement the Securitizations Act during 2017 which will facilitate the diversified investment opportunities The Colombo Stock Exchange (CSE) is urged to list at least 25 Companies during Foreign companies are invited to be listed in the CSE. To improve the outreach of the Treasury bond market to foreign investors specially to attract more stable and foreign investments to Bonds and streamlining its settlement mechanism, it is proposed to utilize the Euroclear facility by 30 th June 2017 Capital TRUST Securities (Pvt) Ltd Page 3

4 Amended Tax Rates The corporate income tax rates will be revised to 3 tiers structure of lower rate of 14%, standard rate of 28% and the higher rate of 40% as follows: (a) Lower rate of 14% will be applicable for the profits and income of : - SMEs (maximum turnover limit of Rs 500mn per annum) - Export of goods or services - Agriculture - Education (b) Higher rate of 40% will be applicable for the profits and income of : - Betting &Gaming - Liquor - Tobacco (c) Standard rate of 28% will be applicable on the profits and income of all the other sectors including Banking and Finance, insurance, leasing and related activities etc. The present tax rate of 10% applicable for Funds (EPF, ETF,etc.),Charitable institutions, Dividends, Treasury Bonds and Treasury Bills and any other sector will be increased to 14% Capital Gain Tax (CGT) will be imposed at the rate of 10% on the gain realized from disposal of immovable properties Exemptions from corporation tax applicable on the income from the investment on listed securities, Dividends, Unit Trusts and other instruments will be removed Notional Tax Credit applicable on the secondary market transaction of securities also will be removed Telecommunication Levy on Internet services will be increased to 25% The present threshold for Economic Service Charge ( ESC) will be reduced from Rs 50mn per quarter to Rs 12.5 mn per quarter Withholding Tax (WHT) on interest income will be increased to 5% Profits and income from employment: Tax free threshold on employment will be increased from Rs. 750,000 to Rs. 1.2 mn per annum. The deduction for qualifying payments will be adjusted accordingly. Capital TRUST Securities (Pvt) Ltd Page 4

5 Industry Impact Banking, Finance and Insurance Sector Corporation Tax rate on banking and financial services, including insurance and leasing industry will remain at 28%. Income tax rate of 10 percent currently applicable on funds, dividends, treasury bills and bonds will be increased to 14 percent. The Notional tax credit will be removed and the income on instruments subject to upfront tax such as Treasury Bills, Bonds or Corporate Debt Securities will be taxable on the net interest. It is proposed to increase the minimum capital of Licensed Commercial Banks to Rs. 20,000 million, Licensed Specialized Banks to Rs. 7,500 million and Primary Dealers to Rs. 1, 500 million. Amana Bank PLC (ABL), Nations Trust Bank (NTB), PABC and Union Bank (UBC) will have to raise new capital. Amalgamate HDFC Bank and State Mortgage and Investment Bank (SMIB) to create Housing Bank and the government will allocate Rs. 7,500 million for capital infusion. At present the single shareholder limit for banks is restricted at 10 percent while the tenure for members of the Boards of Directors is restricted to 9 years. It is proposed to revisit these policies in view of the proposed consolidation of Banks. It is proposed to limit the loan to value ratio for vehicle categories. Three Wheelers 25 percent, Motor Cars and Vans 50percent, Commercial Vehicles (Lorries and Heavy Vehicles) 90 percent. This will negatively impact on the amount of lending. It is proposed to process a loan less than Rs. 5 million in less than 1 month. Foreigners eligible to buy condominiums with a loan of up to 40% of the value, however, such debt servicing should be in foreign currency. This will increase demand for credit which will improve interest based income. It is proposed to continue the senior citizens deposit scheme which guarantees an interest of 15 percent for deposits up to Rs.1.5 million, during 2017 as well. Capital TRUST Securities (Pvt) Ltd Page 5

6 This would increase the overall cost of funds of Banks & Finance Companies. But the impact will be insignificant. It is proposed to establish EXIM (Export Import) bank collaboration between the government and the industry. It is proposed to introduce new Levy called FTL (Financial Transactions Levy). It will charge a tax of 5 rupees for every 10,000 rupee transaction made by banks and financial institutions. It is proposed to introduce an insurance scheme for school children and government will bear the premium. Insurance policy is Rs. 200,000. This scheme will cover both in and outpatient services, subject to a maximum of Rs. 100,000 for hospitalization and Rs. 10,000 for outpatient services. The government will bear the premium. Diversified Sector It is proposed to free the off port anchorage fee for 12 hours. It is also proposed the bulk chartered cargo charges to be at 15 percent of Freight on Board (FOB) or applied freight charge whichever is lower, with immediate effect. Multi Country Consolidated (MCC) containers with zero domestic cargo will be considered a transshipment container and the relevant Terminal Handling Charges (THC) will not be liable on such containers. It is also proposed to liberalize the de-stuffing of the MCC cargo. Conglomerates such as Aitken Spence (SPEN), Hemas Holdings (HHL), John Keells Holdings (JKH), Expo Lanka (EXPO) engaged in maritime and logistic businesses will benefit and will have more opportunities. At the same time, exports and imports related to Entrepot Trade will be allowed on No Foreign Exchange (NFP) terms, on establishment that logistic handling charges have been paid. Land & Property Foreigners will be allowed to borrow 40 percent of their investment in condominiums from banks and the debt servicing should be in foreign currency. Considering the significant potential for foreign investment it will remove freehold right restrictions from the ground floor. Capital TRUST Securities (Pvt) Ltd Page 6

7 This is positive for John Keells Holdings (JKH) & Overseas Realty (OSEA) as this will improve sale of apartments Private companies with majority foreign holdings will be allowed to lease land on long term basis. However, such companies should have invested at least Rs. 250 million excluding the value of land providing employment to at least 150 people, and have maintained this status quo for at least 3 years. If the conditions are not fulfilled after 3 years, 100percent of the lease will have to be paid up front. This will facilitate more foreign investments and create new job opportunities Construction Sector Corporate tax rate will be increased from 12% to 28% This would affect the bottom-line of construction sector companies such as Access Engineering PLC (AEL), MTD Walkers PLC (KAP.) It is proposed to remove the Cess of 25 percent which is applicable on pre-fabricated structures. Government encourages the private sector companies to engage in mechanical sea sand washing in designated areas to meet the shortage of sand. Government encouraged to note that fiberglass reinforcement, which is a high quality building material, will commence production in Sri Lanka which will help to reduce the cost of construction in the country. In order to ensure that payments to contractors are made on time, it is proposed to formulate an adjudication mechanism, which could be used as a formal dispute resolution method. It is propose to introduce a Payment Guarantee Security Act which will provide adequate cover in recovering their payments. The above mentioned budget proposals would create more opportunities and benefits to the companies such as Access Engineering PLC (AEL), MTD Walkers PLC (KAP.) Manufacturing & Export Sector The corporate tax rate of Export of goods and deemed exports will be increased from 12% to 14% Capital TRUST Securities (Pvt) Ltd Page 7

8 This will negatively impact the net profit margin of manufacturing & export sector companies If there is an increase of 15 percent or more foreign currency earnings for the year of assessment 2016/17 compared to 2015/16, the exporters will be granted a rebate of an amount equal to the 75 percent of tax attributable to the excess earnings. All companies in export business can benefit Motor Vehicles & Transport Sector The Economic Service Charge (ESC) threshold will be reduced to Rs.12.5 million per quarter and ESC will be charged at the point of customs on the importation of motor vehicles. This will have no direct impact on motor sector companies. It is proposed to introduce a Carbon Tax for all carbon fuel run motor vehicles. The emission test fee also will be included in the Carbon Tax. The Department of Motor Traffic will be the collecting authority of the Carbon Tax. The cost of emission test of a vehicle will be reimbursed to service provider by the Department. The vehicle owners need not to pay an additional fee for the emission test. This can affect Laugfs Eco; emission testing subsidiary of Laugfs Gas (LGL). It is proposed to reduce Excise Duty on electric cars with motor power less than 100 KW. This will positively affect the motor sector companies such as United Motors (UML), C M Holdings (COLO) and Sathosa Motors (SMOT) and creates a new opportunity in the small car market. The age limit for importing Lorries and refrigerated trucks of capacity over 5 Metric Tonne to be extended to 10. This will negatively affect brand new vehicle market and the motor sector companies such as United Motors (UML), Diesel & Motor Engineering (DIMO) and Sathosa Motors (SMOT) will be affected. It is proposed a tax incentive on exporting vehicles which are more than 5 years old. Any export of not less than USD 200,000 that constitute minimum of 20 vehicles will be granted an Excise Duty waiver of 50 percent from the payable duty for importing a motor car with CIF value not exceeding USD 50,000. Capital TRUST Securities (Pvt) Ltd Page 8

9 This will negatively affect the motor sector companies such as United Motors (UML), Diesel & Motor Engineering (DIMO), C M Holdings (COLO), Lanka Ashok Leyland (ASHO) and Sathosa Motors (SMOT). It is proposed an extension of the engine capacity based unit rate method for calculating excise duty to Motor Cycles similar to motor cars as introduced in the last budget. This will have no impact to the motor sector companies as the cost charged will be passed to the final customer. Telecommunication, IT and BPO Sector It is proposed to list Mobitel on CSE. Telecommunication Levy on internet services will be increased to 25 percent par with the other Telecommunication services. All mobile operators are required to upgrade their infrastructure to provide 3G coverage within 6 months. Failure to comply will result in a surcharge of Rs. 100 million per District. All metro areas are required to be converted to 4G by 30th June It is propose to charge a SIM Card Activation Levy (SCAL) of Rs. 200 per SIM It is proposed to increase the Annual Spectrum Licensee Fee by 25 percent, with effect from January 1, The services provided by the external gateway operators to local operators will be exempted from VAT and NBT. This will add pressure to the bottom lines of Dialog Telekom PLC (DIAL) and Sri Lanka Telecom PLC (SLTL). It is proposed to form a Company on PPP which will own the Telecommunication Towers. This will enable the Telecom Industry to reduce its cost of operations through the synergies that will arise from the sharing of assets, and the expertise that will be developed. Government invites the telecom service providers to support the Smart Class Room concept in schools by providing Wi-Fi connections. Capital TRUST Securities (Pvt) Ltd Page 9

10 This will improve the top line of the Telecommunication service providers such as Dialog Telekom PLC (DIAL) and Sri Lanka Telecom PLC (SLTL). Agriculture & Plantations Sector The corporate tax rate of Agricultural companies will be increased to 14% from the previous 10% & 12%. This will negatively impact the net profit margin of the agricultural and planation sector companies. It is proposed to provide a 50 percent interest subsidy to farmers, farmer organizations and agro processing establishments for upgrading the sector through infusion of productivity enhancing technologies and practices. This will positively affect to CIC and other agro processing companies To improve mechanization through the use of machines such as Transplanters, Hand Weeders etc. It is proposed to remove the Customs Duty, VAT and PAL applicable on such imports. Further, it is proposed a loan scheme where 75 percent of the interest will be borne by the government This will positively affect plantation sector companies. Government land to the extent of 20,000 acres from the Maduruoya Right Bank and other areas will be released to cultivate the 5 major food crops, fruits and vegetables on a commercial scale, targeting the export market. This will be provided with a minimum land plot of 1,000 acres on a long term lease basis. This will positively affect CIC, Renuka Agri Foods (RAL) and plantation sector companies. This will open doors for new business opportunities. The government expects to increase the export earnings from Tea to USD 5 billion by 2020, focusing on exporting value added tea. Therefore it is proposed, the Sri Lanka Tea Board extends guarantees to local tea exporters to obtain USD loans for brand promotion. This will positively affect plantation sector companies. To support the tea industry through a simplified tax and tariff structure, it is proposed to abolish the Import and Export Control Fee of 1 percent on CIF price of Tea, to remove the fee on the packing of tea, and to remove the fee on the Logo Registration. Capital TRUST Securities (Pvt) Ltd Page 10

11 This will positively affect plantation sector companies and tea trading companies such as John Keells Limited (JKL). It is also propose to simplify the annual renewal of licenses, with the Sri Lanka Tea Board which had six categories to two, where large companies will be subjected to a fee of Rs. 500,000 per annum and smaller companies a fee of for Rs. 50,000 per annum. In order to promote and support CTC teas (Cut, Tear and Curl) which has a significantly large global market, but faced with restrictions at the point of imports. The government will take action to ease regulations on the import of CTC teas. A fine of Rs. 300 per kilogram will be imposed on those violating the regulations the ban on export of Refuse Tea. This will positively affect plantation sector companies and tea trading companies such as JKL to gain market share. It is proposed to allow importation of raw Coconut oil products, which should be exported after value addition. Such, businesses will be eligible at the point of exports the reimbursement of taxes imposed when importing the relevant raw materials. A Rs.75 million will be allocated to develop an automated Commodity Exchange. In addition, the Sri Lanka Tea Board, the Coconut Development Board and the Export Development Board will also contribute to this venture through their Cess funds. This will positively affect plantation sector companies. It is proposed to impose a minimum price of Rs. 5,000 per Metric Tonne, for sugarcane with effect from 1st January 2017, based on the ex-factory price formula. Local and foreign investors will be invited to invest in Sugar Mills Rs. 75 Mn with a minimum plant size of 2,000 Tonnes crushed per day (tcd). Government will provide land to cultivate with a 100 percent capital allowance on the investment. This will positively affect Palwatte Sugar and Distilleries of Sri Lanka (DIST). This will also create an opportunity to all the plantation sector companies. It is also proposed to establish a Sugar Stabilization Fund by imposing a 2 percent Cess on imported sugar and 5 percent on ethanol imports, to protect the sugarcane farmers, from the adverse impact that may arise from the fluctuations in price and loss of crop. Capital TRUST Securities (Pvt) Ltd Page 11

12 This will negatively affect Distilleries of Sri Lanka (DIST) profit margins as DIST is sourcing approximately 50% of its ethanol requirement from overseas. CESS on export of rubber increased to Rs. 15 per kg This will further tighten profit margins of plantation companies. Food and Beverage It is allowed to import the deficit of maize whenever the Animal feed industry is faced with a shortage of domestically produced Maize, subject to payment of a Cess. This Cess will be reimbursed as an export rebate on the export of Chicken. This will beneficial for Ceylon Grain Elevators (GRAN). It is proposed that the whole chicken price be maintained at Rs. 420 per kg, where 40 percent of the supply to the market should be whole chicken. Profit margins of Bairaha Farms (BFL), Three Acre Farms (TAFL) and CIC can be negatively affected. It is requested the Ceylon Tobacco Company to donate Rs. 500 million to the Presidential Fund to be utilized by the Presidential Task Force for the anti-smoking campaign. This can affect the balance sheet of Ceylon Tobacco Company (CTC). However this amounts to approximately 5% of CTC last financial year profits. The fool proof sticker system announced in the last Budget will be introduced soon with the view of controlling the illicit liquor circulation in the country and to control the leakages. The bidding process is completed and sticker system will be implemented in This will reduce the illicit liquor in the market and will allow Distilleries of Sri Lanka (DIST) to enjoy a higher market share It is proposed to introduce Excise Duty on the quantum of raw materials used for producing ethanol. This would help reconciling the actual amount of production of ethanol. Type of raw material Molasses Coconut Toddy Maize Rice Any Other Proposed Duty Rs. 20/- per Lt 10/- per Lt 20/- per Kg 20/- per Kg 20/- per Kg Capital TRUST Securities (Pvt) Ltd Page 12

13 This will also beneficial to large distil players like Distilleries of Sri Lanka (DIST) To provide a better price for locally manufactured spirits, Duty on imported ethanol will be upwardly revised. It also proposed to introduce Excise Duty of Rs. 25 per liter for imported non-potable liquor for giving further assistance to local manufacturers. This will negatively affect Distilleries of Sri Lanka (DIST) profit margins. Excise (Special Provisions) Duty will be introduced on the importation of beer can at the rate of Rs.10 per can of not more than 325 millilitre and Rs. 15 per can of more than 325 millilitre. Profit margins of Beer manufacturers such as Lion Brewery (LION), Ceylon Brewery (BREW) and Cargills (CARG) can be negatively affected. Textile & Apparel Sector Sri Lankan government allow apparel companies based in Sri Lanka to invest in overseas entities involved in apparel design and manufacture up to 5 percent of their average export turnover of the preceding three years in any given year. Profits and income of such enterprises established overseas should be received by the investing company in Sri Lanka. It is proposed to establish 15 export villages, on a PPP basis. High End Apparel sector companies such as TEE JAY LANKA PLC (TJL), Orient Garments (OGL), Haleys Fabric PLC (MGT) will benefit from the above mentioned proposal. It is proposed to establish a venture which includes sizing, dyeing and finishing units by the private sector. This venture is estimated to save at least USD 2,000 million per annum. This is a type of backward integration, which will reduce the fabric imports to the country. For the purpose of creating additional avenues for garment exports, permission will be granted to import branded products by enterprises for reworking, operating under the commercial hub regulation. Such garments will be exported to countries where there is no preferential treatment. Capital TRUST Securities (Pvt) Ltd Page 13

14 Tourism Sector Corporate Tax rate increased from 12% to 28% and it is proposed to impose 0.5% Tourism Development Levy. This will negatively affect the tourism sector companies bottom line. It is proposed to issue 5 year multiple entry visas from 2017, to international students who wish to study in Sri Lanka. Such endeavors will also promote educational tourism. It is proposed to allocate Rs.1bn to do a global market campaign to promote tourism and brand Sri Lanka. It is proposed to allocate Rs.50mn to organize annually an Exhibition called Colombo Fair to promote tourism. It is proposed to develop infrastructure facilities in Trincomalee to Pasikuda to Batticaloa to Arugam Bay, the Monaragala Ella corridor, the Chilaw Kalpitiya zone and the corridor from the Dedduwa Lake to the Akurala area. Further, Ella, Bandarawela and Haputale have been identified as an eco-tourism triangle. To support the eco-tourism triangle government have already initiated feasibility study on a domestic airport in the Badulla district or simultaneously exploring the process of linking Badulla district to the southern expressway. Hotels which have been in operation for more than 10 years will be assisted to refurbish and upgrade their facilities to be in line with the modern requirements at a cost of almost Rs.25 billion. The government will assist by providing an interest subsidy on such expenditure for which it is proposed to allocate Rs. 500 million. Sri Lanka's government will set up a common booking platform for hotels in the country in place of international booking engines the government hopes to collect 25 billion rupees from the move. It is proposed to issue visas on arrival, valid for a period of 1 month. A Penalty of at least Rs. 500,000 will be imposed on those who overstay and also going to introduce e-visa system. The government is closely monitoring the impact of minimum room rate which is applicable within the city hotels and by 2018 the minimum room rate regime will be terminated. It is proposed to strengthen the activities of the Tourist Police. Capital TRUST Securities (Pvt) Ltd Page 14

15 The above mentioned budget proposals will promote tourism in the country which will attract more tourists to the island and will benefit entire Hotel sector companies including AITKEN SPENCE HOTEL HOLDINGS PLC(AHUN),JOHN KEELLS HOTELS PLC (KHL), TAL LANKA, KINGSBURY etc. Power and Energy Sector CPC together with the Lanka Indian Oil Company (LIOC) will rehabilitate and develop the Upper Oil Tank farm at Trincomalee. It is proposed to reduce the maximum retail price of LP Gas by Rs.25 per 12.5kg domestic cylinder. Further VAT will not applicable on LP Gas. This will negatively affect the bottom line of Laugfs Gas PLC (LGL). It is proposed to reduce maximum retail price of Kerosene by Rs. 5 per litre and reduce the prices of Petroleum and LP Gas in line with declining global prices. This will negatively affect the bottom line of LIOC. Import license fee to be charged on the license for the import of lubricants, bitumen. This will negatively affect the bottom lines of LIOC and Chevron Lubricants Lanka (LLUB) Health Care Service Sector Corporate income tax rate for healthcare services increased from 12% to 28%. This will negatively affect net profit margins of the health care sector companies. PAL on pharmaceutical products under HS Code No , to reduce to 2.5%. This will positively benefit the companies engage in pharmaceutical business such as Hemas Holdings (HHL), Sunshine Holdings (SUN), Nawaloka Hospitals (NHL) and CIC. Capital TRUST Securities (Pvt) Ltd Page 15

16 Summary of the Budget Rs. Bn F Revised Revised Revised Budgeted Total Revenue and Grants 1,264 1,478 1,658 2,098 Total Revenue 1,254 1,468 1,648 2,088 Tax Revenue 1,050 1,284 1,432 1,821 Income Tax Taxes on Goods and Services ,086 Taxes on External Trade Non Tax Revenue Provincial Councils Tax Sharing and Devolved Revenue Grants Total Expenditure 1,855 2,153 2,328 2,723 Recurrent Expenditure 1,382 1,648 1,842 2,024 Salaries & Wages including Provincial Councils Other Goods & Services including Provincial Councils Interest Subsidies and Transfers Public Investment Education and Health Infrastructure Development Other (14) (12) (14) (9) Revenue Surplus(+)/Deficit(-) (128) (180) (194) 64 Primary Surplus (+)/Deficit (-) (155) (183) (67) 55 Budget Deficit (591) (675) (670) (625) Total Financing Total Foreign Financing Foreign Borrowings - Gross Foreign Borrowings Foreign Commercial Debt Repayment (118) (297) (145) (178) Total Domestic Financing Non-Bank Borrowings Foreign Investment on T Bills and T Bonds 1 90 (100) 60 Bank Borrowings Revenue and Grants/GDP (%) Revenue /GDP (%) Tax/GDP (%) Non-Tax Revenue /GDP (%) PCs Tax Sharing and Devolved Revenue /GDP(%) Grants Expenditure/GDP (%) Recurrent Expenditure/ GDP (%) Non-Interest /GDP(%) Interest/GDP(%) Public Investment/GDP (%) Revenue Surplus (+) / Deficit (-) GDP (%) (1.2) (1.6) (1.6) 0.5 Primary Surplus (+)/Deficit (-)/ GDP (%) (1.5) (1.6) (0.5) 0.4 Budget Deficit/GDP (%) (Excluding Grants) (5.7) (6.0) (5.4) (4.6) Source: Budget Speech, 2017 Capital TRUST Securities (Pvt) Ltd Page 16

17 Important Disclaimer This information and opinion contained in this report have been complied by our research department from sources believed by it to be reliable and in good faith, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. All opinions and estimates contained in the document constitute the department s judgment as of the date of this document and are subject to change without notice and are provided in good faith but without legal responsibility. This report is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any securities. Capital Trust Securities (Pvt) Ltd. (the company) or persons connected with it may from time to time have an investment banking or other relationship, including but not limited to, the participation or investment in commercial banking transactions (including loans) with some or all of the issuers mentioned therein, either for their own account or the account of their customers. Persons connected with the company may provide or have provided corporate finance and other services to the issuer of the securities mentioned herein, including the issuance of options on securities mentioned herein or any related investment and may make a purchase and/or sale, or offer to make a purchase and/or sale of the securities or any related investment from time to time in the open market or otherwise, in each case either as principal or agent. This report may contain forward looking statements which are often but not always identified by the use of words such as anticipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward looking statements. Capital Trust Securities expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. Exchange rate fluctuations may affect the return to investors. Neither the company nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained therein. Capital TRUST Securities (Pvt) Ltd, their respective affiliate companies, associates, directors and/or employees may have investments in securities or derivatives of securities of companies mentioned in this report, and may make investment decisions that are inconsistent with the views expressed in this report. Capital TRUST Securities (Pvt)Ltd, it s directors, officers, consultants, employees, associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorney s fees which recipients of the reports suffers or incurs directly or indirectly arising out actions taken as a result of this report. Capital TRUST Securities (Pvt) Ltd Page 17

18 TELEPHONE : (011) HOTLINE : (011) FAX : (011) E MAIL : inquiries@capitaltrust.lk TRADING DIVISION BOARD OF DIRECTORS Tushan Wickramasinghe (011) Moksevi Prelis (Chairman) Dakshana Gooneratne (011) Tushan Wickramasinghe (Managing Director/CEO) Lawrence David (011) Methmal Senivirathne (CFO) M J M Husni (011) Sandesh Jayakody (011) Nilantha Perera (011) Saliya Gamagedera (011) Asanka Perera (011) Shanmugasharma Rakesh Sharma (011) Rasika Vidanalage (011) Thilina Yahampatharachchi (011) Sajee Perera (011) Anushan Kandasamy (011) Shehan Mendis (011) Chamila Fernando (011) Dilshard Hameed (011) Danushka Arambegedra (011) Laxman Ratnayake (011) KANDY BRANCH Arjuna Wilbawa (081) Mohomed Faizan (081) FAX (081) KURUNEGALA BRANCH Dammika Senarathne (037) FAX (037) NEGOMBO BRANCH Sanjeewa Perera (031) Narada Abeysinghe (031) FAX (031) MATARA BRANCH Venura Gamage (041) Jagath Rathnayake (041) FAX (041) MORATUWA BRANCH CAPITAL TRUST RESEARCH (PVT) LTD Suneth Fernando (011) Charitha Gunasekere (011) Bhanuka De Silva (011) Melani Nawaratne (011) Asoka Dharmatilaka (011) Ruvini Kaushalya (011) FAX (011) CUSTOMER SERVICE DIVISION CAPITAL TRUST CREDIT (PVT) LIMITED Prashani Perera (011) (011) ACCOUNTS DIVISION CAPITAL TRUST FINANCIAL (PVT) LIMITED Methmal Senivirathne (011) Anushan Kandasamy (011) Ranjini Jayawardena (011) Subani Wimalarathne (011) Kumari De Alwis (011) DOCUMENTATION DIVISION N.M.A Navaratne (011)