Sri Lanka financial transaction tax to be paid by banks: Finance Minister

ECONOMYNEXT – A debit tax on bank withdrawals will have to be paid by banks, Finance Minister Ravi Karunanayake said, amid rising concerns that the levy will discourage the use of the banking system and encourage a cash economy.

The budget for 2017 imposed a Rs5 tax on every Rs10,000 withdrawn from banks.

Karunanayake told a forum organised by Sri Lanka’s Ceylon Chamber of Commerce that banks will have to bear the cost of the so-called Financial Transactions Levy (FTL).

Banks will now have to recover the tax by giving lower interest rates to customers overall or raising interest rates to lenders, or both, analysts say.

The debit tax was imposed in Sri Lanka in the early 2000s and withdrawn.

The imposition of the new tax goes against the declared principle of the new administration to simplify the tax system and reduce the total number of taxes.

Many of Sri Lanka’s policy wonks have been calling to increase the tax to gross domestic product ratio, going against the time-honoured principle of basic economics that rulers should be forced to cut spending, improving the use of tax money, rather than allowing them to take more money.

The new administration ratcheted up spending on state workers. (Colombo/Nov15/2016)

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