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Friday March 1st, 2024

Sri Lanka tax revenues up 27-pct with galloping inflation, one off levy

ECONOMYNEXT – Sri Lanka’s tax revenues grew 27 percent from a year ago to 543.6 billion rupees up to April 2022 partly helped by one-off retrospective tax, official data showed while inflation also started to gallop which tends to boost nominal turnover based taxes.

By April Sri Lanka’s 12-month inflation had hit 29.8 percent but many traded goods had risen higher.

The first installment of a retrospective tax had brought 59.6 billion rupees, a Finance Ministry report said. Income tax revenue was up 170 percent to 149.2 billion in the first four months.

Value Added Tax (VAT) on domestic activities increased by 36.6 percent to Rs 85.3 billion in the first four months of 2022 from Rs62.4 billion while revenue collected from excise duty on domestic activities increased 14.6 percent to Rs 94.7 billion.

VAT, CESS and PAL had marginally increased by 1.4 percent to Rs 203.6 billion in the first four months of 2022 from Rs 200.7 billion in the same period of 2021.

Customs Import Duties (CID) fell 44.7 percent to Rs. 17.5 billion and Special Commodity Levy (SCL) 22.9 percent to Rs. 15.8 billion, respectively due mainly to the import restrictions and downward revisions of SCL rates.

The realization of revenue from income tax as against the annual estimated revenue of Rs. 496.0 billion was 30.1 percent in the first four months of 2022.

Petroleum taxes had fallen 20 percent to Rs 16.4 billion with import volumes falling to 2.9 million metric tonnes from 3.4 million a year ago.

With non-tax revenues, total revenues were up 31 percent to 630.9 billion rupees boosted by central bank profits.

The central bank had transferred profits (as domestic liquidity) despite reserve losses and forex shortages.

Sri Lanka’s central bank had projected 20.7 trillion gross domestic product for 2022, sharply up from 16.8 trillion a year ago with a 22 percent inflation.

However it is not clear whether inflation would further increase nominal GDP, despite fall in real activity due to fuel shortages and lower spending power from a currency crisis expected to trigger a contraction in real GDP.

Without fuel many economic activities have came to a standstill in late June and early July as monetary instability blocked oil payments.

The statistics office had meanwhile also revised the GDP up based on a re-basing.

Inflation Hair Cut

When inflation go up, nominal government revenue go up and domestic debt holders, pensioners bear a key part of a real hair cut on debt as they lose the value of their savings, unlike foreign dollar debt holders and the cost of living and taxes go up.

Rupee wage earners including state workers also lose living standards and pay more taxes contributing to the fiscal correction as the rupee is depreciation. If they had rupee bank deposits or government debt, they pay the fall in the real value of savings as well.

Dollar debt holders are generally protected from depreciation and inflation unless a debt restructuring is done, though bond holders automatically suffer a hair cut and higher nominal tax payments as the currency depreciations.

Based on the central bank projection and last year’s GDP, tax revenues was 2.6 percent of GDP up from 2.5 percent a year ago as revenue grew 27 percent.

Current spending grew at a slower rate of 14 percent to Rs 1,016 billion rupees and was down to 4.9 percent of GDP from 5.3 percent based on the inflated GDP.

The revenue deficit was down to Rs 385.9 billion rupees (1.9 percent of GDP) from Rs 408.4 billion a year ago (2.4 percent of GDP).

Capital spending was Rs138.4 billion up 23 percent, giving an overall deficit of 524.3 billion rupees or 2.5 percent of GDP, compared to 3.1 percent last year.

The primary deficit was 97 billion rupees, down from 154 billion rupees last year.

Foreign borrowings were a net repayment of 127 billion rupees while domestic net borrowings were 651 billion rupees.


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Sri Lanka’s RAMIS online tax collection system “not operatable”: IT Minister

ECONOMYNEXT – Sri Lanka’s online tax collection system RAMIS is “not operatable”, and the Ministry of Information Technology is ready to do for an independent audit to find the shortcomings, State IT Minister Kanaka Herath said.

The Revenue Administration Management Information System (RAMIS) was introduced to the Inland Revenue Department (IRD) when the island nation signed for its 16th International Monetary Fund (IMF) programme in 2016.

However, trade unions at the IRD protested the move, claiming that the system was malfunctioning despite billions being spent for it amid allegations that the new system was reducing the direct contacts between taxpayers and the IRD to reduce corruption.

The RAMIS had to be stopped after taxpayers faced massive penalties because of blunders made by heads of the IT division, computer operators and system errors at the IRD, government officials have said.

“The whole of Sri Lanka admits RAMIS is a failure. The annual fee is very high for that. This should be told in public,” Herath told reporters at a media briefing in Colombo on Thursday (29)

“In future, we want all the ministries to get the guidelines from our ministry when they go for ERP (Enterprise resource planning).”

President Ranil Wickremesinghe’s government said the RAMIS system will be operational from December last year.

However, the failure has delayed some tax collection which could have been paid via online.

“It is not under our ministry. It is under the finance ministry. We have no involvement with it, but still, it is not operatable,” Herath said.

“So, there are so many issues going on and I have no idea what the technical part of it. We can carry out an independent audit to find out the shortcomings of the software.”

Finance Ministry officials say IRD employees and trade unions had been resisting the RAMIS because it prevents direct interactions with taxpayers and possible bribes for defaulting or under paying taxes.

The crisis-hit island nation is struggling to boost its revenue in line with the target it has committed to the IMF in return for a 3 billion-dollar extended fund facility. (Colombo/Feb 29/2024) 

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Sri Lanka aims to boost SME with Sancharaka Udawa tourism expo

ECONOMYNEXT – Sri Lanka is hosting Sancharaka Udawa, a tourism industry exhibition which will bring together businesses ranging from hotels to travel agents and airlines, and will allow the small and medium sector build links with the rest of the industry, officials said.

There will be over 250 exhibitors, with the annual event held for the 11th time expected to draw around 10,000 visitors, the organizers said.

“SMEs play a big role, from homestays to under three-star categories,” Sri Lanka Tourism Promotion Bureau Chairman, Chalaka Gajabahu told reporters.

“It is very important that we develop those markets as well.”

The Sancharaka Udawa fair comes as the Indian Ocean island is experiencing a tourism revival.

Sri Lanka had welcomed 191,000 tourists up to February 25, compared to 107,639 in February 2023.

“We have been hitting back-to-back double centuries,” Gajabahu said. “January was over 200,000.”

The exhibition to be held on May 17-18, is organized by the Sri Lanka Association of Inbound Tour Operators.

It aims to establish a networking platform for small and medium sized service providers within the industry including the smallest sector.

“Homestays have been increasingly popular in areas such as Ella, Down South, Knuckles and Kandy,” SLAITO President, Nishad Wijethunga, said.

In the northern Jaffna peninsula, both domestic and international tourism was helping hotels.

A representative of the Northern Province Tourism Sector said that the Northern Province has 170 hotels, all of which have 60-70 percent occupancy.

Further, domestic airlines from Colombo to Palali and the inter-city train have been popular with local and international visitors, especially Indian tourists. (Colombo/Feb29/2024)

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Sri Lanka rupee closes at 309.50/70 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 309.50/70 to the US dollar Thursday, from 310.00/15 on Wednesday, dealers said.

Bond yields were slightly higher.

A bond maturing on 01.02.2026 closed at 10.50/70 percent down from 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.10 percent from 11.90/12.00 percent.

A bond maturing on 01.07.2028 closed at 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.30/45 percent up from 12.20/50 percent.

A bond maturing on 15.05.2030 closed at 12.35/50 percent up from 12.25/40 percent.

A bond maturing on 01.07.2032 closed at 12.55/13.00 percent up from 12.50/90 percent. (Colombo/Feb29/2024)

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