COLOMBO (EconomyNext) – A retrospective tax slammed on big firms in the country was not the best signal to the market, Deputy Policy Planning and Economic Minister Harsha de Silva said, insisting that it will not be a precedent.
Finance Minister Ravi Karunanayake proposed a 25 percent windfall style tax on taxable profits on companies claiming that such firms had ‘ill-gotten’ gains, after raising state worker salaries by an unprecedented amount.
"The retrospective nature of the tax, I agree is not the best signal to the market," de Silva told reporters Monday.
"This is not a precedent as such. We do not expect to use this as a precedent and follow through with such taxes in the future. We have very clearly said this is a one-time tax."
De Silva insisted that some large companies had made ill-gotten gains especially through inflated road building contracts.
He said on Friday Ceylon Chamber of Commerce Chairman Suresh Shah had said that not all companies should be painted with the same brush and he agreed.
Analysts had pointed out that retrospective taxes are a violation of just rule of law and it also opened the way for future administrations to also make elections promises and finance them by high taxes on big firms.
Though the current administration set a threshold on profits of 2.0 billion rupees. Though companies could protect themselves by running a series of small subsidiaries future administrations could take the threshold down to a billion rupees or even 500 million.
Companies would also try to protect themselves by not undertaking expansion projects when close to elections.
Sri Lanka would also not be able to attract foreign firms to set up regional headquarters here with such taxation.
The budget also slammed one billion rupee windfall taxes on several firms including casinos. It is unlikely that they would be able to pay.
Analysts point out that such taxes violates basic principles of taxation practised for millennia in Sri Lanka and the region. If some of most of such taxes could not be collected as the firms would die, and the credibility of the budget numbers were also in doubt.
At least 5.0 billion rupees were expected from five casinos, which were exempt from value added taxes by the last regime while tinned fish, rice wheat and milk powder were taxed at high levels.