Sri Lanka shares snap five-day winning streak on tax woes

COLOMBO, May 4 (Reuters) – Sri Lankan shares ended weaker on Wednesday, snapping five straight sessions of gains, as worries about tax hikes dented sentiment.

Brokers said investors were worried over a tax hike that takes effect from Monday, as it could hit compny bottomlines. However, a loan deal with the International Monetary Fund last week limited the fall.

The benchmark stock index fell 0.22 percent to 6,568.85, slipping from its highest close since its January 11 hit, on Tuesday.

"We saw some selling pressure come in, as the outlook does not seem that great, as the VAT revision is going to impact," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

The finance minister on Sunday said the government is seeking to raise Rs100 billion in revenue in 2016 by increasing the VAT and other new taxes effective Monday.

The rise in market interest rates also weighed on sentiment, with yields on short-term government securities climbing 7-10 basis points to a more-than-two-year high at a weekly auction on Wednesday.

Foreign investors were net sellers of Rs105.1 million worth of shares on Wednesday, extending the year-to-date net foreign outflow to Rs3.07 billion worth of shares.

Turnover stood at Rs1.03 billion ($7.06 million), more than this year’s daily average of around Rs779 million.

The IMF said on Friday that it reached an agreement with the Sri Lankan government for a $1.5 billion bailout to help the island nation avert a balance of payments crisis.

The three-year loan will require IMF board approval in June, the global lender said, and is subject to Sri Lanka implementing reforms, including streamlining the tax code and reducing a bloated deficit.

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Shares in Ceylinco Insurance Plc dropped 0.34 percent, while Ceylon Cold Stores Plc fell 3.6 percent and conglomerate John Keells Holdings eased 0.51 percent.

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