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Monday February 6th, 2023

Sri Lanka to increase VAT to 12 percent, telecom levy to 15 percent

ECONOMYNEXT – Sri Lanka Prime Minister and Minister of Finance Ranil Wickremesinghe has proposed an increase in value added tax (VAT) from 8 percent to 12 percent and a hike in the telecommunication levy from 11.25 percent to 15 percent with immediate effect, the prime minister’s office said.

A statement from the PM’s office said the following proposals have also been made:

  • Decreasing VAT threshold from Rs. 300 million per annum to Rs. 120 million per annum effective from October 1, 2022.
  • Reviewing VAT exemption schedule and removal of unproductive exemptions based on the economic benefits.
  • Removal of the VAT exemption on Condominium Residential Apartments effective from October 1, 2022.
  • Removal of zero percent VAT rate granted on the supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the Sri Lanka Tourism Development Authority, if sixty per centum of the total value of the inputs are sourced from local supplies/sources and imposition of 12 percent tax rate on the same effective from October 1, 2022.
  • Making any other consequential amendments due to the above proposals.

“The VAT rate was reduced from 15 percent to 8 percent with effect from December 1, 2019 and the threshold for registration of VAT was increased from Rs. 3 million per quarter or Rs. 12 million per annum to Rs. 75 million per quarter or Rs. 300 million per annum effective from January 1, 2020. Due to the above reforms coupled with the impact of COVID-19, VAT revenue declined by 47 percent to Rs. 233.8 billion in 2020 from Rs. 443.9 billion in 2019,” the statement said.

The telecommunication levy, meanwhile, was reduced from 15 percent to 11.25 percent effective from December 01, 2019, which led to a decrease in revenue by 28 percent to 13.1 billion rupees in 2020 from 18.3 billion rupees in 2019, the PM’s statement said, explaining the increase.

Income tax reforms have also been proposed, along with changes to betting and gaming levies.

Meanwhile, the following amendments have been proposed to the Fiscal Management (Responsibility) Act, No. 3 of 2003.

  1. Inclusion of a provision where exceeding the Treasury Guarantee limit is permitted in the case where there is a exceptional depreciation or other unforeseen circumstances.
  2. Inclusion of an escape clause to ensure flexibility that the Government may deviate from the operational target(s) or fiscal rule(s) due to unforeseen circumstances. This would eliminate the need to continually amend the Act each time when a target is breached.

The cabinet of ministers have approved the proposed reforms, the statement said.

The PM’s statement noted that the low tax regime introduced in late 2019 following the election of President Gotabaya Rajapaksa caused an annual loss of around LKR 600 billion – 800 billion in tax revenue to state coffers.

“Therefore, these reforms are now being looked as policies that led to a significant loss of government revenue, partly due to the spread of COVID-19 pandemic in 2020/2021 and related developments, which affected the revenue generation process, ultimately resulting in the lowest revenue to GDP ratio in the region. The revenue to GDP ratio has declined to 9.1 percent in 2020 from 12.7 percent in 2019 and further deteriorated to 8.7 percent in 2021. This is significantly lower than the average revenue ratio of around 25 percent of GDP in emerging market and developing economies.

“The low tax regime, the impact of the COVID-19 pandemic on revenue mobilisation, together with the pandemic relief measures, widened the budget deficit significantly to 11.1 percent of GDP in 2020 and 12.2 percent of GDP in 2021 from 9.6 percent of GDP in 2019. This has led to an increase in the government debt to GDP ratio to 100.6 percent in 2020 and 104.6 percent in 2021 from 86.9 percent in 2019,” it said.

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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Sri Lanka’s Ceylon Tea prices down for second week

ECONOMYNEXT – Sri Lanka’s Ceylon Tea prices fell for the second week at an auction on January 31, with teas from all elevations seeing a decline, data showed.

“In retrospect, the decline in prices would be a price correction owing to the overall product quality and less interest from some key importers due to the arrival of cargo at destinations ahead of schedule,” Forbes and Walker tea brokers said.

The weekly sale average fell from 1475.79 rupees to 1465.40 rupees from a week ago, according to data from Ceylon Tea Brokers.

The tea prices are down for two weeks in a row.

High Growns

The High Grown sale average was down by 20.90 rupees to 1380.23 rupees, Ceylon Tea Brokers said.

High grown BOP and BOPF was down about 100 rupees.

“Ex-Estate offerings which totalled 0.75 M/Kg saw a slight decline in quality over the previous week” Forbes and Walker said.

OP/OPA’s in general were steady to marginally down.

Low Growns

In Low Grown Teas, FBOP 1 was down by 100 rupees and FBOP was down by 50 rupees while PEK was up by 150 rupees.

The Low Growns sale average was down by 8.55 rupees to 1547.93 rupees.

A few select Best BOP1s along with Below Best varieties maintained.

OP1                     Select Best OP1’s were steady, whilst improved/clean Below Best varieties maintained.   Others and poorer sorts were easier.

PEKOE                 Well- made PEK/PEK1s in general were steady, whilst others and poorer sorts were down.

Leafy and Semi Leafy catalogues met with fair demand,” Forbes and Walker brokers said.

“However, the Small Leaf and Premium catalogues continued to decline.

“Shippers to Iran were very selective, whilst shippers to Türkiye and Russia were fairly active.”

This week  2.2 million Kilograms of Low Growns were sold.

Medium Growns

Medium Grown BOP and BOPF fell by around 100 rupees

The Medium Growns sale average was down by 33.40 rupees to 1199.4 rupees.

“Medium CTC teas in the higher price bracket witnessed a similar trend, whilst teas at the lower end were somewhat maintained subject to quality,” Forbes and Walker brokers said.

“Improved activity from the local trade and perhaps South Africa helped to stabilize prices to some extent.”

OP/OPA grades were steady while PEKOE/PEKOE1 were firm, while some gained 50-100 rupees at times.

Well-made FBOP/FBOPF1’s were down by 50-100 rupees per kg and more at times.

(Colombo/Feb 5/2023)

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