ECONOMYNEXT – Sri Lanka is planning to raise value added tax to a uniform 15 percent, charge capital gains tax and retain corporate income tax at levels seen before reductions in a budget for 2016, reports said.
The cabinet of minister had discussed a proposal put forward by Prime Minister Ranil Wickremsinghe to reduce the budget deficit and amid mounting liabilities and expenses, Sri Lanka’s Daily Mirror newspaper said.
A budget for 2016 that proposed a lower 15 percent corporate income tax for some companies will not take place. The budget also proposed removing Value Added Tax from retailing and increasing a cascading National Building Tax to 4.0 percent from 2.0 percent.
The Daily Mirror newspaper said value added tax will be raised to 15 percent (see yesterdays’ EconomyNext story) from around 11 percent, and NBT will be retained at current levels, based on a proposals in a paper submitted to the cabinet.
A capital gains tax will also be introduced, which means gains from stock and securities are likely to be taxed.
VAT will be at a uniform rate. Multiple rates allow room for tax fraud. Analysts have also said that the current system of not giving VAT invoices to some customers, requiring tweaking to the billing software to issued different types of invoices has also opened the door to widespread tax fraud.
It is not clear what happens the tax free threshold for individual income tax which was lifted to around 3.0 million rupees (over 20,000 US dollars), from the earlier 600,000 rupees (4000 US dollars). In the US the tax free income threshold for individuals is about 6,300 dollars.
Each year the threshold is raised to compensate for inflationary ‘bracket creep’ under a set formula without interference from politicians.
However the US does not have double digit levels of sales tax (VAT or NBT) or high import duty protection on food and other items, making many foods cheaper than in Sri Lanka for the poor, and some other expenses are also permitted.
Sweeping exemptions for VAT will removed the report said. This would include private education and health.
Analysts say education and health is given ‘free’ from tax payer revenue in Sri Lanka and any private spending on education is a 100 percent tax reduction for the government.
Sri Lanka has a large public sector, with unemployed graduates being given jobs as well as loss making state enterprises which is a heavy burden on the poor.
The new administration raised salaries sharply last year, increasing the burden. Money printed to finance the budget and repay loans have resulted in the currency collapsing from 131 to 145 to the US dollar over the past year. (Colombo/Mar03/2016)