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Monday March 4th, 2024

Sri Lanka to introduce India’s digital payment system UPI amid tax evasions

ECONOMYNEXT – Sri Lanka will introduce India’s Unified Payment Interface (UPI), a revolutionary digital payment move to achieve a cashless economy, which may help to tighten loopholes that have allowed for tax evasion in the island nation.

The UPI will help the public to use their smartphone as a virtual debit card.

In other words, people do not need any cash or card to carry out transactions. They can simply use the smartphone as a debit card and send and receive money through it. The UPI is an interface that allows the user to link more than one bank account in one smartphone app and transfer funds without having to share any account number.

Sri Lanka President Ranil Wickremesinghe will witness the launch of Unified Payment Interface (UPI) services in Sri Lanka and Mauritius along with Prime Minister of Mauritius, Pravind Jugnauth and Indian Prime Minister Narendra Modi on Monday 12 via video conferencing, the Indian High Commission in Sri Lanka said.

“India has emerged as a leader in Fintech innovation and Digital Public Infrastructure. Prime Minister (Modi) has placed a strong emphasis on sharing our development experiences and innovation with partner countries,” the Indian High Commission in Colombo said in a statement.

“Given India’s robust cultural and people-to-people linkages with Sri Lanka and Mauritius, the launch will benefit a wide cross-section of people through a faster and seamless digital transaction experience and enhance digital connectivity between the countries.”

It also said the launch will enable availability of UPI settlement services for Indian nationals travelling to Sri Lanka and Mauritius as well as for Mauritian nationals travelling to India.

Officials at the state-rub Inland Revenue Department (IRD) say the move will help to tax a person at the point of receiving funds or earning income from multiple sources to various bank accounts.

BOOSTS OVERALL TAX REVENUE 

According to Indian tax experts, people in India have been rapidly switching to e-wallets due to the various restrictions, limitations, and withdrawal fees in bank accounts.

These digital wallets and UPI transactions are very quick and also save the people from the hassle of carrying cash or a card, they say.

And it can be linked to multiple bank accounts. It is convenient even for those who are not very comfortable with technology.

The UPI saves the taxpayers from paying more taxes, while serving as a foolproof method for tracking transactions and reduces the use of cash which is hard to track.

Electronic transactions also help increase the overall tax revenue of the government.

Local tax experts say tax evaders had used multiple bank accounts under personal names as well as joint bank accounts in the past. They believe the UPI could effectively address the weakness in Sri Lanka’s existing tax collection system with no physical meeting with tax officials. ‘

In India, UPI transactions up to.50,000 Indian rupees are exempt from tax. Any amount exceeding this limit, received through UPI apps or digital wallets, is treated as a gift and taxed as per the provisions applicable to income from other sources. However, if the money received is a repayment of any sum owed to you, it will not be taxed. (Colombo/Feb 12/2023)

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Sri Lanka rupee opens at 308.20/50 to the US dollar

Sri Lanka stocks reversed its falling trend and gained for the first time in six sessions on Tuesday closed stronger on Tuesday (21).

ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/50 to the US dollar Monday, from 308.80/90 on Friday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.08.2026 was quoted stable at 10.90/11.00 percent.

A bond maturing on 15.09.2027 was quoted at 11.90/12.00 percent from 11.90/12.05 percent.

A bond maturing on 01.07.2028 was quoted at 12.20/30 percent from 12.15/35 percent.

The Colombo Stock Exchange opened up; The All Share was up 0.60 percent at 10,755, and the S&P SL20 was up 1.24 percent at 3,077. (Colombo/Mar4/2024)

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Sri Lanka central bank swaps top $3.2bn by December

ECONOMYNEXT – Sri Lanka’s central bank borrowed US dollars from various counterparties through swap transactions, which had topped 3.2 billion US dollars by December 2024, official data show.

The net short position, including swaps disclosed by the central bank, grew by over almost 1.28 billion US dollars from December 2022 to 3,280 million dollars.

The gross position grew from 2,263 million dollars to 3,280 million US dollars over the year.

The central bank supported some state banks with dollars to cover their dollar exposures, which had since been paid back.

By December reported gross reserves of the central bank was 4,491 million US dollars, against swaps of 3,280 billion US dollars.

Swaps of around 1500 related to the People Bank of China.

Swaps allow a central bank to increase gross reserves, without raising domestic interest rates.

Swaps with domestic counterparties lead to liquidity being injected into money markets, which can be mopped if domestic credit growth is moderate.

At the moment many private banks have large dollar positions invested outside the country, which cannot be used for transactions domestically because of a money monopoly given to macro-economists. (Sri Lanka repays debt or collects reserves of U$5bn via banking system since rate correction)

However unwinding swaps after private credit has picked, or engaging in swaps after private credit has picked up, may lead to money being injected to maintain the policy rate, leading to excess credit by banks and balance of payments deficits and or currency collapses, analysts say.

Central bank swaps in the third quarter of 2018 led to a collapse of the currency under the ‘exchange rate as the first line of defence’ policy peddled to Sri Lanka, critics have said earlier.

Domestic currency proceeds of swaps were the primary ammunition to bust East Asian currencies in 1997-98.

Any depreciation after the swap proceeds have been used for imports (effectively mis-targeting rates) a central bank will run a forex loss.

The PBOC however had put a rule, preventing the use of the swap after gross reserves fell below 3 – months of imports, preventing Sri Lanka from getting into further trouble through the use of official reserves for private imports.

Sri Lanka’s central bank also used borrowings from the Reserve Bank of India, via the Asian Clearing Union to run BOP deficits.

Losses from exposed dollar positions of central banks which have gained ‘independence’ from fiscal rules and parliaments and engaged in macro-economic policy, including the Fed, have led to taxpayers bearing the losses in the end.

Swaps were invented by the Fed in the early 1960s, as it deployed macro-economic policy (printed money for growth) threatening its gold reserves and the Bretton Woods system.

Sri Lanka has other borrowings also, including from the IMF, which has made net foreign assets of the central bank negative. (Colombo/Mar05/2024)

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Sri Lanka loses MICE tourists to Thailand on minimum room rates

ECONOMYNEXT – Sri Lanka has lost Meetings, Incentive Travel and Exhibition travelers to competitors in East Asia and India due to minimum room rates as higher standard rooms were available in other countries at lower prices, industry officials said.

President of the Sri Lanka Association of Inbound Tourist (SLAITO) Nishad Wijetunga said they the industry managed to retain a majority of booking made before the minimum room rates were imposed by the state last year.

“However, there were MICE groups that were supposed to come and cancelled Sri Lanka and went to places like Thailand and other parts of India and we lost,” Wijetunga told EconomyNext.

“We know that large groups of MICE (tourists) are affected.”

India is a key source of MICE tourists to Sri Lanka.

Sri Lanka’s businesses have got used to protectionism and try to push up prices with import taxes to extract more money from customers using the coercive power of the state, with tiles and steel being among the most prominent examples.

RELATED: Stand-alone hotels unviable in Sri Lanka due to high construction, capital costs

High priced tiles and steel in turn makes hotels expensive to build and make the leisure industry less competitive, analysts say.

However, in tourism, unlike in building materials customers are not trapped within the country and are free to move to other markets.

Managing Director of CEC Events and Travels, Imran Hassan, said the industry lost groups to East Asia due to minimum room rate.

In one instance, an operator was in discussions to get a group of 900 passengers.

“And that moved out to Thailand,” Hassan said. “Like that, there are many instances that the minimum room rate was not conducive.”

Thailand in 2023 attracted 28.04 million tourists.

A group that used to come to Sri Lanka annually used to take 40 to 50 five-star hotel rooms. This time Sri Lanka competed by offering lower standard.

“This year, they’re only giving 10 rooms to the five-star hotels,” Hassan explained. “They are staying in smaller hotels because they can’t afford it because it has become so expensive.”

“But overall, we are working with the authorities to correct it.

“We don’t mind demand and supply situation taking the rates up as in the Maldives. But what we are saying is keep an open market.”

RELATED : Sri Lanka should say good bye to minimum room rates: President

President Ranil Wickremesinghe has said Sri Lanka cannot progress with protectionism and the country has to learn to face competition. (Colombo/Mar04/2024)

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