Sri Lanka state workers could arbitrage Rs15bn in taxes from car ‘permits’

ECONOMYNEXT – Sri Lanka’s state workers could arbitrage taxes of around 15 billion rupees by re-selling duty-slashed permits that have been given to them in the latest round, based on secondary market prices.

The tax slashed car permits a given as a neo-feudal discriminatory privilege to state workers while the ordinary man on the street is hit with massive taxes on motorcycles and three wheelers as well as cars.

The permits are selling around 2.1 to 2.3 million rupees, JB Securities, an equities research house said in a note to clients. There are an estimated to 6000-8000 such permits in the market, the note said.

Assuming only 6000 such permits were finally sold at 2.1 million apiece, state workers could arbitrage around 12.4 billion rupees. If 8,000 were sold at 2.3 million rupees, 18.4 billion rupees could be arbitraged.

While state workers were given tax free permits, small car buyers were hit with new taxes early this month in latter day ‘Nixon shock’ style move to solve a monetary policy problem with a real economy administrative move.

Sri Lanka which operates an unstable soft-pegged exchange rate regime has balance of payments troubles due to inconsistent policy, especially when credit growth is normalized.

In April the central bank hit the system with variety to tools to boost liquidity and pressure the currency.

The central bank also makes unsterilzed purchases dollars from the state or market participants to maintain a pegged regime (prevent the rupee from strengthening) and does not follow through with unsterilized sales when the new rupees turn into imports.

Analysts have called for reform of the peg, or abolition of the central bank in favour of a currency board or dollarization to enable free trade and stop the impoverishment of the people. (Colombo/Sept02/2018)





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