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Wednesday February 1st, 2023

Sri Lanka ‘social security’ levy is a travesty, should be a sunset tax: Harsha

ECONOMYNEXT – Sri Lanka’s new tax-on-tax social security contribution levy which undermines value chains goes against the stated policy of the country and should be consolidated into Value Added Tax or removed as soon as practicable, opposition legislator Harsha de Silva said.

Sri Lanka’s parliament passed the tax with 91 voting for and 10 against, losing an opportunity to reform the country’s tax system in a graphic display of what usually happens in the country where bad policies get worse.

The 2.5 percent tax was proposed by ex-Finance Minister Basil Rajapaksa when Value Added Tax was 8 percent.

“If you look at it like VAT a minimum of 5 percent (will add to retail prices),” de Silva said.

“This is an ‘achcharu’ tax. You now have VAT and (cascading) turnover tax. When this was proposed by Basil Rajapaksa, VAT was 8 percent. It was increased to 12 percent in May and 15 percent,” de Silva said.

“This tax can add 5 or 7 percent to the final tax at sale.”

The tax went against the principles set out by Minister Manusha Nanayakkara in his opening speech which said indirect taxes should be reduced and the tax system simplified.

“Minister Nanayakkara, you talked about tax administration, how people do not pay,” de Silva said. “If you impose taxes like this it will get further complicated.

“It is VAT is should be VAT. If there is turnover tax, it should be turnover tax.

“If you want to put VAT at 22 percent, then make it 22 percent.

“You mentioned that the world is going in this direction. That is right. But tell me which country is progressing with has both types of taxes? It is very difficult.”

Minister Nanayakkara said he agreed.

“I agree as a policy that the tax system should simplified.”

De Silva said the tax should be ended after a time.

“Then you should put a sunset clause. In the next budget give a time frame when it is ended. This is like a NBT.”

De Silva who heads the parliament’s Public Finance Committee had said earlier the tax was cleared due to the economic crisis the country was facing, though it was fundamentally flawed.

He said when taxes are sent to the committee for approval a proper analysis should be followed.

Meanwhile condominium developers had said the tax should not be applied to buildings already started.

De Silva said he was tabling the document.

Taxes in generally should not be applied retrospectively as it undermines the rule of law and the predictability of the business environment where decision are made.

Allowing legal changes to only apply to the future and exempting existing practices or projects known as “grandfathering” is practice followed in fast growing countries where people are free and prosperous. (Colombo/Sep09/2022)

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Sri Lanka bond yields down at close

ECONOMYNEXT – Sri Lanka’s bond yields were down at close following a bond auction on Wednesday, dealers said while a guidance peg for interbank transactions remained unchanged.

“The rates were steady at the auction,” a dealer said.

“This can be a signal to the market saying the rates will go down in the future.”

A bond maturing on 01.07.2025 closed at 32.40/60 percent, down from yesterday’s 32.60/85 percent.

A bond maturing on 01.05.2027 closed at 29.10/35 marginally down from yesterday’s 29.20/75 percent.

The Central Bank’s guidance peg for interbank US dollar transactions remained unchanged at 362.14 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 371.38 rupees on Friday, data showed. (Colombo/Feb 01/2022)

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Sri Lanka bill auction hits pothole after 2025 bond spike

ECONOMYNEXT – Sri Lanka sold only 45 billion rupees in Treasury bills at Wednesday’s auction after offering 120 billion rupees, data from the state debt office showed, amid market confusion over a spike in a two year bond at an earlier action.

30.1 billion rupees of 3-month bills were sold at 29.91 percent, unchanged from a week earlier after offering 60 billion rupees for auction.

5.1 billion rupees of 6-month bills were sold at 28.72 percent, flat after offering 30 billion.

10.3 billion rupees of 12-month bills were sold at 27.72 percent after offering 30 billion.

Phase II subscriptions have been opened.

The market was foxed after the 2025 bonds were accepted at sharply higher yield than market on January 30, dealer said.

There was further confusion as the there was an outright purchase of 2025 at around 29 percent earlier in January.

Some investors speculated that the authorities were trying to drive more buyers towards short end bonds as bill volumes were getting larger. (Colombo/Feb01/2023)

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Sri Lanka services exports down 5.9-pct in 2022

ECONOMYNEXT – Sri Lanka’s services exports were estimated to have fallen 5.9 percent to 1,876.3 million US dollars, the island’s Export Development Board said.

Services exports estimated is made up of ICT/BPM, construction, financial services, transport and logistics.

There are more than 500 ICT companies, the EDB said.

Sri Lanka’s merchandise exports were up 4.6 percent to US dollars 13.1 billion dollars in 2022 from 2021.

Sri Lanka’s goods exports are slowing amid lower growth in Western markets. (Colombo/ Feb 01/2023)

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