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Tuesday May 30th, 2023

Sri Lanka central bank workers protest tax hike as governor defends painful measures

ECONOMYNEXT – Employees of Sri Lanka’s Central Bank have joined a week-long “black protest” campaign organised by state sector unions against a sharp hike in personal income tax, even as Central Bank Governor Nandalal Weerasinghe said painful measures were needed for the country to recover from its worst currency crisis in decades.

President of the Central Bank Executive Association Jayadu Perera told EconomyNext on Friday January 26 that while the protesting CBSL staff were not opposed to paying taxes, they take issue with the unprecedented increase which came into effect in the new year.

Perera claimed that the tax he paid in December had increased six-seven fold.

“This is true for most public servants, and we cannot bear this burden,” he said.

“This is a very unfair tax since it is the professionals of this country that make all the sacrifices,” he added.

Perera complained that Sri Lanka’s ruling class maintain high living standards and enjoy all the luxuries while subjecting workers like him to an “extremely unfair and unjust” tax.

Opposition to Sri Lanka’s newly increased direct taxes has been rising, with a number of unions and professional associations taking to the streets demanding that the decision is reversed.

The government, however, defends the tax hike arguing that it is strapped for cash as Sri Lanka, still far from a complete recovery, is struggling to make even the most basic payments, to say nothing of the billions needed for public sector salaries.

Economists say Sri Lanka’s bloated public service is a burden for taxpayers in the best of times, and under the present circumstances, it is getting harder and harder to pay salaries and benefits.

Defenders of the tax hike say that the road to recovery is a painful one, and Central Bank chief Weerasinghe, meanwhile, told reporters at the monthly monetary policy review on Wednesday January 25 that the country would have to take certain painful measures to come out of the crisis.

Asked about the trade union action organised by his staff – with most employees dressed in black – Weerasinghe joked that he too was in black but said in a more serious vein that at CBSL, anyone was free to exercise their democratic right to protest.

He also stressed that taxation is not under the purview of the Central Bank whose primary obligation is monetary policy.

The CBSL staff, however, continues to protest.

“This tax increase was implemented without any discussion with workers who are the victims of this policy,” claimed Perera.

Acknowledging the country’s dire financial straits, he said: “But why must only the professionals make sacrifices? Why not the politicians?”

Another worker who did not wish to be named claimed that he was left with just 10,000 rupees after tax.

“This an intolerable burden laid upon our heads. We will continue this protest until they give us relief. Today we did it during the lunch break. In the future we will do more,” he said.

Other workers who shared these sentiments told EconomyNext that most of them have debt obligations of their own and once they have settled loans, interest and other bills, a large income tax is the last straw.

“We have our own personal commitments. All we say is that taxation should be fair, transparent and equitable. Show us the rulers that are being taxed the same way,” said one CBSL worker.

Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation said it serves as a disincentive to industry and capital which can be invested in business. They argue that a flat rate of taxation is implemented where everyone is taxed at the same rate.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair. (Colombo/Jan26/2023)

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Sri Lanka’s stocks end over one-month low on weak macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares end lower on Tuesday as selling pressure continues while investors continues for more clarity on local debt restructuring, an analyst said.

The main All Share Price Index (ASPI) was down 0.50 percent or 42.52 points to 8,532.60, the lowest since April 27.

The most liquid index was up 0.14 percent or 3.42 points to 2,418.90.

“Investors are adopting a wait and see approach on the need for more clarity on debt restructuring and debt optimization and decisions taken at the Policy Review Meeting,” an analyst said.

Sri Lanka’s government was to disclose the stance on domestic debt restructuring towards the end of May, which is why investors have adopted a wait and see approach, however officials have stated there will be a delay in the process of revelation. 

A news article circulating says, non-agreement on the percentage of haircut that the external creditors would take in Sri Lanka’s debt restructuring has taken the Central Bank to the drawing board which has led to the delay in announcing the debt restructuring strategy. 

Sri Lanka’s Monetary Policy Review is scheduled for 01 June 2023, investors are quite optimistic that inflation is to lower and interest rates will decrease, an analyst said.

Analysts said the low volumes seen in the market are due to the debt restructuring concerns, and investors are waiting for the monetary policy review for the next month.

“Stocks went down due to selling pressures resulting from relaxed import restrictions, which are expected to reduce the monopolistic powers held by domestic retailers,” an analyst said.

The main reason for the market’s negative sentiment is the loss of monopoly as import restrictions ease, an analyst said.

The market generated revenue of 575 million rupees, while the daily average turnover was 1.2 billion rupees.

Top losers during trade were Vallibel One, Ceylon Tobacco Corporation and Elipitiya Plantations.

The market generated a foreign inflow of 33 million rupee and the net foreign inflow was 112 million rupees. (Colombo/May 29, 2023)

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Sri Lanka rupee closes at 293.50/294.50 to dollar , bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee closed at stronger at 293.50 /294.50 against the US dollar in the spot market on Tuesday, while bond yields were unchanged, dealers said.

The rupee closed at 296.75 /297.25 to the US dollar on Monday after opening around 296.50 /297.50 rupees.

A bond maturing on 01.09.2027 closed at 26.50/65 percent unchanged from Monday’s close.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 30/2023)

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Sri Lanka food producers on countdown; 6-months to reduce trans fat content

ECONOMYNEXT – Sri Lankan food manufacturers only have another six months to reduce the amount of trans fat in food items as the government plans to ban high trans-fat food from January 2024 onwards, an official said.

“A six-month grace period has been given to existing manufacturers, sellers and distributors whose products contain trans-fat,” an official of the Ministry of Health told EconomyNext requesting anonymity.

According to a Ministry of Health gazette issued on… a person shall not sell, offer for sale, expose or keep for sale or advertise for sale, any packaged food product containing trans-fat unless the total amount of trans-fat of such food product per 100 grams or 100 milliliters of the food product is declared on the label of such packaged food product.

However, these regulations will not be applicable for export oriented food products.

Trans-fat is a type of fat that has certain chemical properties and is usually found in processed foods such as baked goods, snack foods, fried foods, shortening, margarine, and certain vegetable oils.

Eating trans-fat increases blood cholesterol levels and the risk of heart disease.

Meanwhile, the World Health Organization (WHO) has praised Sri Lanka for enacting a legislation on trans-fat to protect health and prevent premature deaths from coronary heart disease, a statement from the WHO said.

“Eliminating trans-fats from food supplies is a cost-effective measure with enormous health benefits,” the statement quoting Poonam Khetrapal Singh, Regional Director, WHO South-East Asia said.

“By enacting legislation on trans-fat, Sri Lanka has once again demonstrated its resolve to protect and promote the health of its people”.

The regulations are coming into effect as Sri Lanka is struggling with food insecurity as the country recovers from its worst economic crisis.

However, an improvement in food security across all provinces has been recorded, according to an assessment by a Crop and Food Security Assessment Mission (CFSAM) of two UN agencies. (Colombo/ May 30/2023)

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