Sri Lanka tax cuts to boost economy, 5-pct of GDP deficit in 2020: Treasury Secretary
ECONOMYNEXT – Sri Lanka’s economic activity will pick up following a series of the tax cuts and the expansion of economic activity will boost revenues and keep the deficit down in 2020, Treasury Secretary Sajith Attygalle said.
The government will also control non-essential expenditures in 2020, to keep the deficit down.
“Initially there would be a revenue dip,” Attygalle said. “We will prioritize expenditure and maintain the deficit around 5 percent of GDP in 2020.”
Sri Lanka’s economic growth dropped to 1.6 percent in the second quarter of 2019 down from 3.9 percent in 2018, from the effect of a currency collapse in 2018, which was worsened by a hit on tourism from Easter Sunday attacks.
The budget deficit expanded to 4.4 percent by July and was expected to expand to as much as 5.6 percent by the year end.
Sri Lanka’s cabinet has approved a value added tax of 15 percent to be cut to 8 percent, removed a nation building tax on domestic sales and replace it with a 8 percent tax, Minister Bandula Gunewardene said.
Attygalle said the new tax would have input credit.
The revenue drop from value added tax would not be 1 to 1 as there were other taxes in the economy he said.
The tax cuts would boost margins and profits of most companies, and retail prices may also come down in the case of companies where VAT and NBT was invoiced to final customers, analysts said.
Where retail prices fall, disposable incomes of consumers go up. Many firms with imported inputs have had their margins hit on the currency collapse in 2018.
Gunewardene said the turnover tax cuts would be effective from December 01.
Sri Lanka cabinet has approved a series of tax cuts including the removal of the economic service charge for companies and pay as you earn taxes for employees, which are advanced collections on income taxes.
A debit tax and debt service charge on banks would also be removed, Gunewardene said. There will be a threshold of 250,000 rupees on pay as you earn tax for salaried workers. (Colombo/Nov28/2019)