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Sri Lanka banks, customers, hit by contradictory debit taxes

ECONOMYNEXT – Sri Lanka budget for 2017 has slapped penal debt taxes on bank withdrawals which claimed to boost banking transactions, but another debit tax may discourage people from using the banking system, analysts say.

Finance Minister Ravi Karunanayake said a 2 percent tax will be slapped on withdrawals above 5.0 million rupees.

"Let me also emphasis very clearly that the proposed 2 percent fee is not applicable on any transaction carried out through the banking channels including through cheques, telegraphic transfers, Bank drafts, etc," Finance Minister Ravi Karunanayake said in the budget speech.

However all deposits smaller that are withdrawn will also be hit by a 5 rupee tax for every 10,000 rupees of withdrawals, or a 0.05 percent fee.

Analysts say this will discourage the use of banks by businessmen and lead to more cash transaction just as an earlier debit tax did.

The earlier debit tax encouraged wage earners who get salaries in cash to keep it at home instead of depositing it in the bank. The debt it was then scrapped.

Even pensioners who get their pensions to the bank will have to pay the tax.

Meanwhile the increasing use of cash in the economy will push up costs of the note issue to the central bank.

The discouragement of using the banking system will also hinder tax collections and the paper trail of businesses, analysts say.

There was no public discussion, or even a known expert consultation before the move. Sri Lanka’s lack of economic freedom is characterized by surprise hits on the people in the budge in the style of a colonial goverment. (Colombo/Nov12/2016)
 

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