Sri Lanka capital gains tax not to be retrospective says minister amid uncertainty
ECONOMYNEXT – Sri Lanka is expecting finalize capital gains tax legislation within a month, and it is not expected to be retrospective, State Enterprises Minister Kabir Hashim said, but uncertainty remains.
Capital gains tax is expected to apply to a broad range of assets and not just land, he said.
There are fears that the capital gains tax will apply retrospectively to profit made up to 2016, if such legislation is brought this year.
The new administration has a record for bringing retrospective legislation to undermine just rule of law.
Hashim said he does not expect capital gains tax to apply retrospectively and will only apply to assets purchased in the future.
He said multiple asset classes and not just land and property is likely to be taxed.
Hashim said capital gains tax was equitable as it collects taxes from those who are more able to pay them, compared to other levies like value added tax.
There is great uncertainty over the application of capital gains tax, including the rate, and how long an asset has to be held to be exempt from capital gains tax as no details have been released so far.
In free countries capital gains taxes are usually between 10 and 20 percent depending on the tax bracket and there are annual allowances (in the UK it is 11,000 pounds) and exemptions like for the house a person is living in.
Cars and other so called ‘wasting assets’ are also exempt from capital gains tax. Assets held for long periods are also exempts in some countries.
Sri Lanka’s tax policy has so far been ad hoc and without evidenced based internal consultation or outside consultation and has had to reverse some taxes as a result.
The government attempted to slap Value Added Tax on education, and imposed the tax on healthcare, which is not something free countries do.
Health spending is made to save lives, and can be large. However there is no VAT on energy, which is a steady day to day expense. VAT on energy instead of excise will also improve Sri Lanka’s competitiveness in merchandise exports.
In most free countries healthcare and funeral services are free of VAT. Sri Lanka’s new administration need to collect more taxes from the peoples as salaries of state workers were raised sharply in January 2015 and subsidies were also given. (Colombo/June22/2016)