Sri Lanka to tax banking transactions for three years

ECONOMYNEXT – Sri Lanka will charge a tax on banking  transactions at the rate of 20 cents for every 1000 rupees, to help repay debt, Finance Minister Mangala Samaraweera said, presenting the most controversial tax in the budget.

The tax will be known as the ‘Medamulana Tax’, he said in a reference to the hometown of ex-President Mahinda Rajapaksa.

The Debt Repayment Tax will be applicable for 3 years and will start on April 01, 2018, Samaraweera said presenting a budget for 2018.

The tax will be charged on all cash transactions and should be paid by the financial institutions.

Sri Lanka had faced a spike in debt repayments in 2018 and 2019, he said.

The tax cannot be charged from customers, Samaraweera said.

The tax if it applies to withdrawals an deposits, it may discourage the operation of automated teller machines and savings accounts by discouraging banks from offering customer conveniences liek easy withdrawals and expanding their ATM networks for the next three years. In theory customers have to give prior notice to withdraw cash from interest paying deposits.

The tax could sharply drive down interest paid on accounts connected to teller cards and lead to steep charges being imposed on current accounts, analysts say. (Colombo/Nov09/2017)