Sri Lanka Prime Minister revives capital gains tax proposal

ECONOMYNEXT – Sri Lanka will charge capital gains tax, Prime Minister Ranil Wickremesinghe told parliament, reviving a tax that was originally expected in 2016 but abandoned following protests by influential stock market investors.

"We will charge capital gains tax (Api pragdanayater badu gahanawar – capital gains tax)," Prime Minister Ranil Wickremesinghe told parliament Thursday.

"Some of you will have to pay for profits earned – your companies. (Hambukarapu samahara ayater gevanner wei – ogollange samagam walerter)"

"The capital gains tax will for the first time tax the capitalists class."

A capital gains tax was to come in 2016 as part of International Monetary Fund-led reform of the tax system to boost taxes after a steep rise in salaries in 2015 forced a currency collapse, when the central bank printed money to finance part of the increased expenses.

The Prime Minister’s comment in parliament came along with a proposal to end exchange controls before the next budget in November, raising questions whether capital gains will be part of the tax proposal next year.

The statement made in parliament in Sinhalese language tended to suggest that capital gains could even be charged retrospectively.

Although it is acceptable to charge capital gains tax, economic analysts have warned that people should not be taxed retrospectively and such taxes should only be applied to future gains.

Analysts say that, at the start, capital gains should be charged at low rates, and should not be charged for investments held for a very long time. (Sri Lanka should not charge capital gains tax retrospectively – Bellwether)

Capital gains taxes are routine in most free or ‘capitalist’ countries, and is a probably the most important ‘progressive tax’ favoured by interventionists. Sri Lanka also had capital gains tax until the 1980s.

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In Sri Lanka, however, basic goods and building materials are taxed at high levels, with a politically powerful producer class colluding with elected rulers to up import duties and restrict trade freedoms of the poorest in society. (Colombo/June10/2016)

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