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Sunday March 26th, 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 seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

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Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

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Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

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