Sri Lankan shares hit near 7-wk closing low; new tax hits sentiment

COLOMBO, June 15 (Reuters) – Sri Lankan shares ended weaker for a second straight session on Wednesday, their lowest in about seven weeks, as concerns over rising interest rates and foreign fund outflows weighed on sentiment.

Investor sentiment also took a hit after the government decided to reintroduce a capital gains tax, dealers said.

Sri Lanka’s cabinet approved a proposal to reintroduce a capital gains tax, according to an official document released on Wednesday that said the failure to tax appreciation of land tied to infrastructure projects is exacerbating income inequality.

"All are concerned about the capital gains tax. It lacks clarity whether the government will impose on equities as well," a stockbroker said, asking not to be named.

The benchmark Colombo stock index ended 0.27 percent lower at 6,500.64, its lowest close since April 28.

Treasury bill yields rose between 1 to 4 basis points at a weekly auction on Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

Stockbrokers said rising interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate edged up 24 basis points to 10.47 percent in the week ended June 10.

Overseas funds offloaded a net 5.58 billion rupees worth of equities so far this year, but they net bought 178 million rupees worth of shares on Wednesday.

Turnover stood at 422.8 million rupees ($2.92 million), well below this year’s daily average of around 768.9 million rupees.

Shares in conglomerate John Keells Holdings Plc fell 0.74 percent, while Cargills (Ceylon) plc lost 2.37 percent.






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