There may be a glimmer of hope for unit trusts that are anticipating new tax hikes replacing the earlier tax breaks with the Treasury being more receptive to the needs of these investments platforms. Industry players told the Business Times that the Treasury is expected to grant tax concessions targeting individual investors for the unit [...]

The Sunday Times Sri Lanka

Unit trusts see a glimmer of hope with easy taxation

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There may be a glimmer of hope for unit trusts that are anticipating new tax hikes replacing the earlier tax breaks with the Treasury being more receptive to the needs of these investments platforms.

Industry players told the Business Times that the Treasury is expected to grant tax concessions targeting individual investors for the unit trusts. Budget 2017 had proposed a withholding tax of 5 per cent for individuals investing in bank deposits while unit trusts were to be subject to a 14 per cent withholding tax. Similar tax differentials proposed at various levels creates an unequal playing field and ultimately could lead to the deterioration of an industry that is established globally to improve investment opportunities to retail investors and enhance financial market efficiency and the Treasury has recognised this, an industry player said.

This has come following representations by the Unit Trust Association which has said that the impact of the new taxes can be quantified at around Rs. 120 billion in withdrawals from the unit trust funds leading to a run on the funds which will ultimately have a cascading effect throughout the banking and capital market.  All these taxes are expected to come into effect from April 1 next week.   Unit trusts provide investors opportunities to invest in markets like Treasury bills, bonds, commercial paper, etc. which most may not have access to. In spite of the benefits available to retail investors, the industry remains small and under-penetrated with assets of Rs. 100 billion (versus bank assets over Rs. 8 trillion).

Over the years corporates who were using unit trust investments to forgo taxes on investment income are now on a wait-and-see mode on the tax scenario and some are already withdrawing their funds, a CEO of a unit trust firm added.   There are about 37 investment managers in Sri Lanka and motor trader, David Pieris Group’s Assetline Capital (Pvt) Ltd is the largest fund with Rs.27.6 billion as at the end of 2016.

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