Consistency in policy which is key for any economy to thrive, the capital market, a vital component of an economy too needs consistency in policy.
Capital market experts have been harping on the need for policy consistency umpteen times ever since trading in stocks or equity trading commenced at the Colombo Stock Exchange or probably from colonial times when share trading began in the Colombo Share brokers Association in 1896.
Chairman CSE Dilshan Wirasekara said what the CSE needs is consistency in policy for a vibrant capital market.
“We would like to see the exemption of Capital Gains Tax continuing,” Wirasekara said. The Inland Revenue Act No.24 of 2017, which took effect from April 1, 2018 introduced the Capital Gains Tax (CGT) on gain from the realisation of investment assets.
The CSE also would like to see according to its Chairman the 15 percent tax on company dividends as a final tax continue and also see the tax reduction granted in 2020 to companies that had listed in the CSE for three years reinstated.
“The concession given to companies that were listed in the CSE for three years, was cancelled after the first year. We would like to see that facility restored,” Wirasekara said.
The CSE aims at increasing the number of IPOs (Initial Public Offering) from around six to 25 this year.
The Exchange also plans to increase the number of active retail investors from the current 35,000 to 100,000 by the end of the year.
According to Wirasekara, of the 900,000 CDS (Central Depository Systems) account holders, corporate and individuals, only around 250,000 have portfolios and of that only 35,00O are active accounts.
‘We are focusing on digital means to attract investors who now don’t have the hassle of going through paper work. Investors could open an account by downloading the app on their mobile phones and trade from any part of the country.
Of course he said all these are subject to the EKYC (Electronic Know Your Customer) process to verify the identity of customers remotely.
Poor financial literacy which has stood in the way of expanding the capital market with more individual investors has not been adequately looked into by the policy makers in the past.
“We have lobbied for the inclusion of capital markets as a subject for the Ordinary Level and Advanced Level curriculum but of no avail to date,” the CSE chief said.
Sri Lanka takes pride in its general literacy rate of over 95 percent but sadly its financial literacy is around 58 percent according to a study in 2015.
The shallow knowledge of mostly knowing the ‘how’ and not the ‘why’ has kept many potential investors from the capital market.
As a result of not knowing enough of ‘why’ in investing in the capital market a large segment of the investor community preferred saving in a bank which gives a low return with less risk.
The All Share Price Index of the CSE reached a milestone surpassing the 17,000-point mark for the first time last month.