CT CLSA Securities’ take on Interim Budget 2015

Finance Minister Ravi Karunanayake presenting the 100-Day Revolution statement in Parliament

• Implement a one off Super Gain Tax to raise Rs.50 b (largest revenue proposal) - One off payment on any company or individual who has earned profits over Rs. 2,000 m in the tax year 2013/2014 will be liable to pay 25% of their profits Potential impact on listed companies

• All major blue chip companies: negative

• Increase employment income threshold for PAYE from Rs. 600,000 to Rs. 750,000 w.e.f. 01 Apr 2015
• Increase State sector employee (1.3 m employees) salaries by Rs. 10,000: Rs. 5,000 w.e.f. Feb, and Rs. 5,000 w.e.f. Jun 2015 incurring a total cost of Rs. 89,700 m (largest expenditure proposal)
• Increase pensioners’ monthly pension by an additional Rs. 1,000 w.e.f. Apr 2015. About 550,000 pensioners to benefit from this revision incurring an additional expenditure of Rs. 4,900 m
• Increase monthly benefits to Samurdhi beneficiaries (low income earners) by 200% w.e.f. Apr 2015, incurring expenditure amounting to Rs. 8,000 m

• Directly none, positive impact via improved consumer purchasing power

• Remit levies and dividends amounting to Rs. 25,000 m by Telecommunications Regulatory Commission (TRC), National Lotteries Board (NLB), LITRO Gas Company, Sri Lanka Tea Board, Rajya Arakshaka Lanka Limited (RALL)

• Directly none, positive on fiscal coffers

• Reduce the Special Commodity Levy on sugar (Rs. 5,423 m), canned fish (Rs. 1,057 m), sprats (Rs. 657 m), coriander (Rs.635 m), green gram (Rs.519 m), turmeric (Rs.426 m); GoSL will forego Rs. 8,350 m
• Reduce Import Duty on wheat grain; foregoing revenue of Rs. 8,000 m

• Listed companies in consumer oriented businesses: marginally positive

• Impose a one off Super Gain Tax (refer details under General segment)

• Commercial Bank of Ceylon (COMB), Hatton National Bank (HNB), Sampath Bank (SAMP), Seylan Bank (SEYB), National Development Bank (NDB), DFCC Bank (DFCC), Nations Trust Bank (NTB), People’s Leasing and Finance (PLC), Central Finance (CFIN): negative impact

• Increase Senior citizens FD interest rates to 15% per annum for a maximum deposit of Rs.1 m
• Waive off a maximum 50% of the loan capital of Rs. 100,000 on the loans advanced to farmers by commercial banks and presently overdue

• All listed banks: marginally negative

• Waive off interest payments on pawned jewellery to a value not exceeding Rs. 200,000 held at State banks

• None: Government banks in Sri Lanka are not listed

• Open commercial bank branches in remote areas
• Open new customer bank accounts without making any initial charge

• All listed banks: Neutral

• Impose a one off levy of Rs. 1,000 m on companies engaged in commercial operations of the Direct-to-Home via satellite operators having more than 50,000 subscribers in Sri Lanka: generate Rs. 2,000 m
• Impose a one off levy of Rs. 1,000 m on satellite owners who utilise the location reserved for Sri Lankan satellite; generate Rs. 1,000 m
• Impose a one off levy of Rs. 250 m on all licensed mobile telephone operators in Sri Lanka; generate Rs. 1,250 m
• Desist mobile facility operators from passing the tax of 25% payable on reload to customers; the company to bear the tax

• Dialog Axiata (DIAL) and Sri Lanka Telecom (SLTL): negative

• Introduce a pricing formula for fuel and electricity tariffs based on global market prices; relieve the treasury, Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB) of any additional financial burden
• Reduction of fuel prices w.e.f. 22 Jan 2015
• The price of a litre of 95 Octane Petrol is down 20% (by Rs.30 to Rs.128), 92 Octane by 22% (by Rs.33 to Rs.117)
• A litre of Diesel down by 14% (by Rs.16 to Rs.95), Super Diesel by 17% (by Rs.23 to Rs.110)
• A litre of kerosene down 20% to Rs.65
• Kerosene reduced by a further Rs.6 per litre to Rs.59 per litre w.e.f. 29 Jan 2015
• GoSL decided to pass the full benefit of declining global petroleum prices to consumers whilst also reducing the taxes applicable on petroleum products - Loss of Rs.85,000 m

• Lanka IOC (LIOC) – neutral; margins expected to be unaffected as reduction is by way of tax removal
• Fuel-intensive manufacturing companies, i.e. Lanka Walltiles (LWL), Lanka Tiles (TILE), Piramal Glass (GLAS): positive

• Revise excise duty on motor vehicle imports; generate Rs. 7,000 m
• Generate additional annual license fee of Rs.1.5 m on importers of both new and used vehicles
• Reduce taxes applicable on motor cars with engine capacity less than 1,000 cc by ~15%
• Revise excise taxes applicable to hybrid vehicles - changes will be implemented from 30 Jan 2015
• Remove depreciation table w.e.f. 30 Jan 2015

• United Motors Lanka (UML), Diesel & Motor Engineering (DIMO), Sathosa Motors (SMOT): marginally positive

• Reformulate the licensing through a tendering process; generate Rs. 600 m
• No one person can possess more than three liquor licenses. Until such time the proposed scheme is implemented, the licensing fee will be doubled
• All liquor and beer manufacturers liable to pay a minimum of Rs. 200 m per month; generate Rs. 5,000 m
• Discourage small players and rationalise the number of manufacturers
• Impose a Special Levy of Rs. 250,000 (one off payment) per tavern and liquor sales outlet; generate Rs. 1,000 m

• Distilleries Co. of Sri Lanka (DIST): positive
• Ceylon Beverage Holdings (BREW): marginally negative

• Raise the guaranteed liquid milk price from Rs.60 to Rs.70 per litre
• Reduce the MRP of milk powder by Rs.61 to Rs.325 per 400g

• Dairy producers sourcing local fresh milk: Cargills (Ceylon) (CARG), Lanka Milk Foods (LMF), Lucky Lanka Milk Processing Co. (LLMP), Renuka Agri Foods (RAL) Nestle Lanka (NEST): negative

• Impose Rs.1,000 m levy on all Casino operators, to be paid before 15 April 2015 as a one off payment (special levy); generate Rs.5,000 m
• Double the annual levy payable under the Betting and Gaming Levy Act; generate Rs. 400 m

• John Keells Holdings (JKH): negative

• Impose levies/dividends on State-owned Tourist Board; generate Rs. 1,000 m
• Increase existing five year age limit to ten years for the importation of passenger buses
• To provide an adequate fleet of buses largely for the tourism industry

• Aitken Spence (SPEN), Hayleys (HAYL), Hemas Holdings (HHL), John Keells Holdings (JKH): marginally positive

• Remove the Customs duty applicable on cement and steel billets; loss of revenue of Rs. 3,000 m

• Access Engineering (AEL), Colombo Dockyard (DOCK), MTD Walkers (KAPI): positive
• Tokyo Cement Company (Lanka) (TKYO): negative

• Increase the guaranteed purchase price of rubber, tea and paddy (to Rs. 350, Rs. 80 and Rs. 50 per Kg)

• Guaranteed price to support local rubber and tea producers