Sri Lanka to charge 7-pct tax from banks on added value
ECONOMYNEXT – Sri Lanka has proposed to charge 7 percent value added style-tax from banks and finance companies, in changes proposed to the Finance Act as a so-called Debt Repayment Levy.
The proposed tax will be calculated "applying the attributable method" referred in the value added tax act 14 of 2002, the bill said.
It is not clear whether customers who take loans can recover the tax, through their value added tax payments.
Banks already pay a non-recoverable value added tax which falls mostly on salaries.
If the ‘Debt Repayment Levy’ is not recoverable as part of the standard value added tax regime by borrowers, the administration would have added yet another tax to the already complex system and would be going against a promise given to reduce the overall number of taxes and broadbase a few and boost compliance in bid to put the country on a faster growth path.
Including the tax in the existing VAT regime is would be consistent with the policy of base-broadening.
Banks are considered easy targets for tax, but the overall effect is to push up nominal interest costs.
The proposed changes to the law also allows for discretion to make exceptions, which critics say can lead to corruption.
"The Ministry may, having regard to the economic development of the country by Order published in the Gazette, exempt any transaction of a financial institution specified in such Order, from the payment of the Levy payable under this Part, subject to such condition as may be specified in such Order.