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Saturday March 2nd, 2024

Sri Lanka opposition leader claims VAT hike will shrink economy

Sri Lanka opposition leader Sajith Premadasa

ECONOMYNEXT – Sri Lanka opposition leader Sajith Premadasa has accused the government of shrinking the economy through its proposal to increase value added tax (VAT) to 18 percent, claiming that it will reduce spending and investments.

Speaking at an event on Friday November 03, Premadasa said Sri Lanka is experiencing a shortage in both dollars and rupees.

“This is a problem. But it can be resolved through economic growth, not through economic shrinkage,” he said.

“This government is shrinking the economy. By increasing VAT, they’re trying to pickpocket the pittance in your hand,” claimed Premadasa.

The increase in VAT, he said, will result in a reduction in spending and investments as people will have less money to spend.

“A country cannot succeed by shrinking the economy. The economy must be grown,” he reiterated, claiming that a future government headed by the main opposition party the Samagi Jana Balawegaya (SJB) will bring about an “era of productivity and exports”.

Earlier in the week, during a discussion with university lecturers on Wednesday November 01, Premadasa claimed that the proposal to increase VAT by 18 percent in 2024 was a distortion of Sri Lanka’s tax formula.

President Ranil Wickremesinghe, meanwhile, defended the proposed VAT hike, amid confusion over how Sri Lanka plans to finance a proposed salary increase for state sector workers in the face of an ambitious 2.3-percent primary surplus target.

Speaking at the National Industry Excellence Awards 2023 on Wednesday, Wickremesinghe acknowledged that the decision to increase VAT was a challenging one, driven by the “need to maintain economic stability”.

The public, particularly the working and underprivileged classes, will have to bear the burden of this “regressive” tax hike, he said.

The salary hike for state sector workers is to be proposed in the upcoming budget for 2024, with President Wickremesinghe also promising to request the private sector to increase salaries of employees following an unprecedented rise in commodity prices due to inflation triggered by 2022’s currency crisis.

There is also an ongoing campaign of agitation by state sector unions demanding a 20,000-rupee salary increase. Government spokespersons have not provided specifics on the salary increased that will be proposed in the budget.

Sri Lanka’s deal with the International Monetary Fund (IMF) includes an agreement to achieve a primary surplus of 2.3 percent of the gross domestic product (GDP) by 2025.

It is against this backdrop that President Wickremesinghe’s administration has increased personal income tax and now also plans to hike VAT by a significant margin, despite protests from unions and increased levels of migration. (Colombo/Nov03/2023)

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Sri Lanka eyes SOE law by May 2024 for better governance

ECONOMYNEXT – Sri Lanka is planning to pass a Public Commercial Business (PCB) Act improve governance of state-owned enterprise by May 2024 as part of an anti-corruption efforts following an International Monetary Fund assessment.

Sri Lanka’s state enterprises have been used by politicians to give ‘jobs of the boys’, appropriate vehicles for personal use, fill board of directors and key positions with henchmen and relatives, according to critics.

Meanwhile macro-economists working for the state also used them to give off-budget subsides or made energy utilities in particular borrow through supplier’s credits and state banks after forex shortages are triggered through inflationary rate cuts.

The government has taken billons of dollars of loans given to Ceylon Petroleum Corporation from state banks.

There have also been high profile procurement scandals connected to SOEs.

An SOE Reform Policy was approved by Sri Lanka’s cabinet of ministers in May 2023.

The Public Commercial Business (PCB) Act has now been drafted.

A holding company to own the SOEs will be incorporated and an Advisory Committee and Board of Directors will be appointed after the PCB law is approved, the statement said. (Colombo/Mar01/2024)

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Sri Lanka rupee closes at 308.80/90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 308.80/90 to the US dollar Friday, from 309.50/70 on Thursday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.65/75 percent up from 10.50/70 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 11.90/12.10 percent.

A bond maturing on 01.07.2028 closed at 12.15/35 percent down from 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent up from 12.30/45 percent.

A bond maturing on 15.05.2030 closed at 12.30/45 percent down from 12.35/50 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.00 percent from 12.55/13.00 percent. (Colombo/Mar1/2024)

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Sri Lanka stocks close up 0.37-pct, Expo to de-list

ECONOMYNEXT – The Colombo Stock Exchange closed up 0.37 percent on Friday, and SG Holdings, the parent company of Expolanka Holdings Plc, said it was taking the company private.

Expolanka is the largest listed company on the Colombo Stock Exchange.

“Expolanka Holdings PLC has, at the Board Meeting held on 1st March 2024, considered a request from its principal shareholder and resolved to initiate the de-listing of the Company’s shares from the Official List of the Colombo Stock Exchange subject to obtaining necessary shareholder approval and regulatory approvals,” the company said in a stock exchange filing.

As per arrangements with SG Holdings Global Pte Ltd, the Company’s majority shareholder, it will purchase its shares from shareholders who may wish to divest their shareholding in the Company at a purchase price of Rs 185.00 per share. The share closed up at 150.50.

The broader All Share Index closed up 0.37 percent, or 39.47 points, at 10,691; while the S&P SL20 Index closed down 0.64 percent, or 19.59 points, at 3,037.

Turnover stayed above the 1 billion mark for the sixth consecutive day, registering 1.4 billion.

Crossings in Melstarcorp Plc (135mn) up at 89.50, Hatton National Bank Plc (64mn) up at 158.00, Hemas Holdings Plc (53mn) up at 75.00 and Central Finance Company Plc (26mn) up at 103.50, added significantly to the day’s turnover.

“The upward trend is continuing, with more retail buying also coming in, the number of trades was more than 10,000 today,” a market participant said. “Investors are looking for undervalued stocks and buying in quantities.” (Colombo/Mar1/2024).

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