Economy

Sri Lanka budget 2023, key tax changes

Tuesday November 15, 2022 2:25 am

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has announced tax changes in an effort boost revenues and also make external trade easier, according to a budget presented for 2023;.

Border Taxes

Sri Lanka will phase out CESS, a para tariff in three years starting from January 2023.

Ports and Airports Levy, another border tax will be phased out in five years.

Instead standard import duty will be raised from 0, 10 and 15 percent to 0, 15 and 20 percent.

Customs Import Duty on a total of 378 selected HS Codes will be revised the Export Development Board Act, No.40 of 1979, effective from November 15,2022.

A Surcharge Tax will be charged at the point of importation, on diesel, petrol and crude oil.

Value Added Tax

A new Value Added Tax Act will be introduced consolidating the amendments inhoduced from the year 2002 to the year 2022.

The exemptions specified in the First Schedule to the VAT Act will be rationalized with effective from April 2023

Crude estimate suggests that revenue forgone due to the VAT exemptions granted to various sectors, indcuding electricity, tsansport and fuel, is estimated to be more than 1 percent of GDP.

Hence it is proposed to remove certain exemptions after reviewing. Amendments to the VAT Act to remove
certain exemptions will be made effective from 01 April 01, 2023.

Social Security Contribution Levy

In 2022 the tax system was further complicated by a cascading social contribution levy, which applies on top of value added tax.

Commercial hub enterprises will be exempted from the the Social Security Contribution Levy Act, No.25 of 2022

Importation of any motor vehicle identified under Harmonized Commodity Description and Coding Numbers for Custom purposes and liable to Excise Duty under the Excise (Special Provisions) Act, No. 13 of 1989, will be exempted from Social Contribution levy with effect from 01.01.202

Equipment used by differently abled persons and the pharmaceutical product categorized under HS code 2844.110, will be exempted from SSCL.

Finance Act/Hub activities

Any business or project intends to engage in the commercial hub activities will be eligible for exemptions granted under the Strategic Development project Act, No.14 of 2008, if identified as Strategic
Development Project.

Exemptions under the commercial hub activities will be extended to bunkering services.

Gaming

The definition of “bookmaker” in Betting and Gaming Lery Act wiJl be extended to include a person receives or negotiates bets on all type of sports event, including online betting.

A licensing mechanism for the business of bookmaker will be introduced, for a fee. Betting and Gaming Levy Act will be amended to permit the licensed bookmakers to register with Inland Revenue Department.

Transitional provision on dividends

Provisions will be introduced to improve the clarity of income tax liability on dividend during the period from October’1.,2022 to the effective date of the Inland Revenue (Amendment) Act, 2022, as follows:-

i. exempt dividend received or derived by non-residents during that period

ii. apply income tax rate of 15% for dividend received or derived by residents during that period

iii exemption will be applicable on any dividend paid by a resident company to a member to the extent that such dividend payment is attributable to, or derived fronL another dividend received by that
resident company or another resident company.

Income tax for grant aid projects

Income eamed by non-resident persons from engagaing in Govemment projects approved by the Minister of Finance taking into consideration the economic benefit to the country, where such project is totally funded from foreign grants.

PAYE tax paid by SOEs for workers

lt is noticed that some State0wned Enterprises (SOEs) are still paying the PAYE / APIT tax liability of employees. This issue has also been questioned at the Committee on Public EnterPrises (COPE) and by the Auditor General as well.

Hence, I propose to sto such payments effective from 1 January 2023,

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Markets

Sri Lanka’s shares slip on profit taking and selling pressure

Wednesday June 7, 2023 5:18 pm

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

Bonds & Forex

Sri Lanka Treasuries yields plunge, 12-month down 318bp

Wednesday June 7, 2023 4:04 pm

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

Bonds & Forex

Sri Lanka forex reserves rise US$722mn in May 2023

Wednesday June 7, 2023 3:48 pm

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.

Related

Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)