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Sri Lanka to extract more taxes from people to pay state salaries in 2016 budget

Nov 20, 2015 08:51 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Sri Lanka's Finance Minister Ravi Karunanayake is expected to outline new measures to raise taxes from the people to pay hiked salaries of a bloated public sector and also show the way to trim tax holidays given to private firms.

Up to August 2015, salaries and pension of state workers totalled 470 billion rupees compared to tax revenues of 773 billion rupees, or 60.7 cents out of every tax rupee paid by citizens to the state.

In 2015 the full year spend on salaries and pensions were 576 billion rupees. According to some estimates this year's spend on salaries and pensions of state workers may top 700 billion rupees.

Finance Minister Ravi Karunanayake had promised a 'revolutionary budget' for 2016.

A retrospective tax which has showed investors that Sri Lanka's income tax regime is very uncertain is expected to boost tax revenues in the last quarter.

The Finance Ministry has already boosted monthly tax revenues to 115.9 billion rupees by August from only 89.6 billion rupees in January, but people mainly in the private sector are still not paying enough tax to keep pace with the salary increments given to state workers.

Leaders of the current regime promised high salaries to state workers to get their votes to oust the Rajapaksa regime and re-establish rule of law, reduce corruption, make the public sector more independent and increase freedom of expression.

People outside the public sector now have to pay for it.

There are fears that the Value Added Tax regime, which was systematically undermined by the Rajapaksa regime may be further diluted and the country may go back 20 years to a turnover based cascading tax regime.

There are expectations that personal income tax rates may go up.

Prime Minister Ranil Wickremesinghe said in a policy statement that the giving of tax holidays willy-nilly may have to end and incentives may shift more towards to tax relief on actual investment volumes.

The Central Bank has printed money to finance the deficit and keep interest rates down and the rupee has so far collapsed to 142.50 from around 131 before an interim budget ratcheted up salaries, pensions, and subsidies in January 2015.

A depreciating currency can push up inflation and give more nominal revenues and also reduce the real value of pension funds of private sector workers.

Giving subsidies and 'inflating debt away' was a tactic that was vigorously pursued in the 1980s. Destroyed real salaries however triggered labour unrest and widespread strikes during the period as people found it difficult to make ends meet.



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