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Wednesday June 7th, 2023

Sri Lanka PAYE tax to stay, high threshold from Jan 01

ECONOMYNEXT – Sri Lanka will keep Pay-As-You-Earn (PAYE), tax for salaries over 250,000 rupees a month, but all personal income will be subject to income tax at a uniform 3,000,000 rupees a year, from January 01, a notice from the tax authorities said.

A cut in income tax for construction companies from 28 to 14 percent, income tax exemption for agriculture, livestock and fisheries and information technology companies will be effective for the current 2019/2020 year of assessment.

Information technology companies have also been released from all other taxes.

Religious institutions will be exempted from income tax from December 01, 2019.

The Inland Revenue Department said the changes are subject to be passed in parliament.

No mention was made about a debt servicing levy or a debit tax on financial services. Earlier, Minister Bandula Gunawardena had announced the removal of these two taxes.

The notice is reproduced below:

As instructed by the Ministry of Finance, new tax proposals made for Income Tax and approved by the Cabinet of Ministers, will be implemented subject to formal amendments to relevant legislation.

1). Income from Agriculture, Fisheries and Livestock shall be exempted fromincome tax, with effect from the year of Assessment 2019/2020.

2). Income Tax Rate applicable on construction industry shall be reduced from28% to 14%, with effect from the year of Assessment 2019/2020.

3). Religious institutions shall fully be exempted from income tax, with effect from December 01, 2019.

4). Tax free threshold of the employment income of all public and private sectoremployees for the purpose of the Pay-As-You-Earn (PAYEE) shall beincreased from Rs. 100,000 to Rs. 250,000 per month and the excessive (sic) personal income shall be liable for income tax at the progressive rate of 06%,12% and 18% for each tax slab of Rs. 250,000, with effect from January 01,2020.

5). Interest income up to Rs. 250,000 per month shall be exempted from theWithholding Tax (WHT), with effect from January 01, 2020.

6). Income of an individual up to Rs. 3,000,000 per annum from any source ofincome shall be exempted from income tax and the excess income to thatamount shall be liable for income tax at the progressive rates of 06%, 12% and18% for each tax slab of Rs. 250,000, with effect from January 01, 2020.

7). Income earned from the supply of services for the receipt of foreign currencyshall be exempted from income tax, with effect from December 01, 2019.

8). Income from the Information Technology and enabling services shall beexempted from all taxes, with effect from the year of Assessment 2019/2020.

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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