Sri Lanka Inland Revenue says no debt repayment tax on banks from Jan

ECONOMYNEXT – Sri Lana’s Department of Inland Revenue has issued a notice saying a debt repayment levy, a new direct tax slapped on banks by the last administration need not be paid from January, potentially lifting their profits from next year.

The debt repayment levy, like all direct taxes hits capital formation, investment and future jobs unlike indirect taxes like value added tax.

The Inland Revenue Department has issued a notice ahead of parliamentary passage of the tax.

“As approved by the Cabinet of Ministers and instructed by the Ministry of Finance, DRL has been abolished with effect from January 01, 2020, pending parliamentary approval,” the tax office said.

“Accordingly, financial institutions are not subject to DRL with effect from January 01, 2020.

“However, DRL payment for the month of December 2019 is required to be paid on or before January 20, 2020 and the return for the financial year should be submitted as usual.”

The last administration slapped the direct tax despite banks facing higher capital charges under new Basle rules.

Up to the nine months ending September Commercial Bank of Ceylon had paid 2.2 billion rupees in DRL and NBT out of pre-tax profits of 16.7 billion rupees.

Hatton National Bank had paid 2.5 billion rupees out of pre-tax profits of 14.5 billion rupees.

However a part of the tax lifted would be recouped by regular income tax.

The debt repayments levy was supposed be temporary.

High and progressive income taxes are favoured by socialists (soak-the-rich taxes), but hits investment and future jobs. The last administration wanted to raise direct taxes and reduce indirect taxes.

The new administration has however also cut Value Added Tax, raising concerns over state finances and interest rates next year. (Colombo/Jan21/2020)