Cash coming into Unit Trusts again

The David Pieris Group company- owned Assetline Capital’s Assetline Income Fund which was Rs. 7.7 billion in March, down from Rs. 22.3 billion in February, was back up to Rs. 23.6 billion as at end April, data showed.

This is certainly not due to renewed interest in unit trusts ( UT), analysts say, but due to the Inland Revenue Bill getting entangled with implementation problems including Supreme Court petitions.

For this reason, the bill is unlikely to be implemented retrospectively from April 1, 2017 and funds that were taken out in March 2017 are being brought back to UTs.

The budget proposals weren't implemented in April as usually is and those who withdrew reinvested in UTs like Assetline, analysts told the Business Times. Assetline Capital runs the largest UT fund. Money reflowing into other such funds were also seen this month, analysts said.

The Budget 2017 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 generate an unequal playing field and ultimately could lead to the decline of an industry that is estab- lished globally to improve investment opportunities to retail investors and enhance financial market efficiency.

There were representations by the Unit Trust Association to the Treasury a few months ago saying that the new impact of the taxes can be quantified at around Rs. 120 billion of withdrawals from the UT funds leading to a run on the funds which will ultimately have a cascading effect throughout the banking and capital market.

Both Securities and Exchange Commission and Colombo Stock Exchange senior officials had met with the Treasury and submitted a paper on the related tax concessions that they have proposed.