June, 5, 2019
According to the annual report 2018 of the central bank of Sri Lanka the employees Provident Fund has made a net profit of Rs. 190.6 billion , 6.1% reduction from the previous year, and credited Rs.194.6 billion to the accounts of the EPF members at an interest rate of 9.5% compared to 10% paid in 2017.
Due to the adverse market conditions that prevailed in 2018, the market value of the listed equity portfolio of EPF has been reduced by Rs.10.9 billion.
unlike in the previous years, those unrealized losses were charged to the income statement directly as per the new accounting standard, SLFRS 09: financial instrument, which is applicable from 01 January 2018.
Furthermore , tax expenditure of the fund also increased by Rs.11.8 billion in 2018, due to the changes in several provisions in the new Inland Revenue Act , which was effective from 01.04.2018
while reiterating CBSL'S commitment to provide higher returns to members on a long term basis, CBSL expects those unrealized losses in the equity investment will reverse in future with the revival of the market and economy as a whole and EPF will continue to pay relatively higher rate of returns to its members.
Following is the full statement that was given by the Central Bank of Sri Lanka in its annual report 2018 in this regard.
The total investment income of the Fund was Rs. 222.4 billion in 2018, and recorded a decrease of 0.1% compared to previous year.
Interest income including amortization gains continued to be the major source of income to the Fund which grew by 4.5% to Rs. 229.4 billion in 2018 from Rs. 219.6 billion in 2017.
Dividend income also increased by 29.9% to Rs. 3.9 billion in 2018 compared to Rs. 3.0 billion in 2017. Net loss on financial instruments at fair value through profit or loss recorded a loss of Rs.10.9 billion in 2018 compared to net gain of Rs. 1.5 billion in 2017.
The Fund earned a total gross income of Rs. 222.8 billion in 2018, recording a decrease of 0.2% compared with the previous year.
EPF was able to earn 10.4% return on investment in 2018 while maintaining operating expenses to gross income ratio at 0.7% per cent in 2018.
With the introduction of the new Inland Revenue Act, No. 24 of 2017, which was effective from 01 April 2018, the income tax rate applicable for the Fund increased from 10% to 14%, which resulted in an increase of Rs. 12 billion in the tax expenditure when compared with the previous year.
Furthermore, the Withholding Tax (WHT) of 10 per cent paid on Treasury bond interest income which had been recognized as a part of gross income under the previous tax regulations has been abolished with effect from 01 April 2018.
Also, the adoption of SLFRS 9, the Accounting Standard applicable for classification and measurement of Financial Instruments, where listed equity instruments were measured at fair value and under the prevailed market conditions, a marked to market loss of Rs. 10.9 billion was charged against the profit for the year 2018.
Due to these reasons, the profit available for distribution decreased by Rs. 10 billion or by 4.9% compared to 2017.
However, EPF has taken measures to declare an interest rate of 9.5% on member balances in 2018 partly utilising the funds in the Profit Equalization Reserve.