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Monday March 4th, 2024

Sri Lanka’s COPF govt to re-evaluate a number of VAT exemptions

ECONOMYNEXT – Sri Lanka’s parliamentary Committee on Public Finance (COPF) has asked the ministry of finance to reevaluate value added tax (VAT) exemptions for medical equipment, ambulances, high-protein agro foods for children and agricultural items.

A statement from parliament said on Thursday November 30 that the COPF has instructed the ministry of finance to submit a report on provisions to release 119 imported that have vehicles yet to be cleared from customs.

COPF has also said the removal of VAT exemptions will not affect ride-hailing services such as Uber and PickMe.

A Value Added Tax (Amendment) Bill that aims to remove VAT exemptions on certain items and includes provisions to discontinue the Simplified VAT (SVAT) system was the subject of the COPF sitting, the statement said.

Official representing the Ministry of Finance has said that agricultural machinery and other equipment including chemical fertiliser which was listed as exempted previously will be VAT liable under the said Bill. Officials had also said that agricultural seeds, agricultural plants, shrimp feed inclusive of prawn feed and animal feed excluding poultry feed will however be exempted from VAT.

“Thus, the Committee questioned the rationale behind including VAT for agricultural items which will impact the domestic agricultural and food industry. The aforesaid was taken up for discussion at the Committee on Public Finance held recently (November 28) in Parliament.

Dairy products such as liquid milk and eggs will also be liable for the VAT. However, the Ministry of Finance said that wheat, wheat flour or powdered milk, pharmaceutical products, drugs will be exempted. According to the statement, the committee had asked the officials why food products made out of grains cultivated in Sri Lanka, identified as high protein and high energy agro foods falling in the category of “Posha” is subjected to VAT in a context where Child malnourishment is considered to be on the rise.

The committee also questioned the officials as to why ambulances and medical equipment are being subjected to VAT.

“After thoroughly examining the Value Added Tax (Amendment) Bill, the Committee has granted approval, contingent upon the Ministry of Finance incorporating the amendments proposed by the Committee on Public Finance, provided they are in accord. Nevertheless, the Committee has urged the officials present to reevaluate VAT exemptions for medical equipment, ambulances, fertilizer, and food products derived from grains classified as high-protein agro foods and agricultural items.”

The elimination of VAT exemptions will not impact the fares of UBER and PickME, COPF Chair de Silva had said.

“As UBER and PickME have included VAT since their inception, contrary to other beliefs, thus the proposed VAT changes will only result in a 3% rise without significantly affecting the ultimate fare that customers are required to pay.

“The Committee on Public Finance also took into consideration the Finance Bill to amend the Finance Act, No. 35 of 2018 and the Finance Act, No. 12 of 2012 which propose provisions to release motor vehicles imported into Sri Lanka which were not cleared from customs due to import restrictions or non-payment of taxes. However, given the matters arising from importing and opening LCs post the suspension of motor vehicle imports by Gazette Extraordinary No. 2176/19 dated May 22, 2020, under the Import and Export Control Act, the Committee Chair instructed the Ministry of Finance to submit a report on the provisions to release 119 imported vehicles yet to be cleared from customs. The Committee thus decided to reconsider the said from thereon.” (Colombo/Nov30/2023)

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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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Sri Lanka coconut auction price up 4.7-pct

ECONOMYNEXT – Sri Lanka’s average coconut auction price rose 4.7 percent to was 73,962 per 1,000 nuts on February 29, data from the Coconut Development Authority shows.

The highest price was 79,600 rupees for 1,000 nuts up from 77,100 rupees a week ago, while the lowest was 67,000 up from 61,000 rupees.

A total of 411,631 coconuts were offered at the auction and 325,591 nuts were sold.

Wholesale prices were 95 to 105 rupees for small nuts and 110 to 120 rupees per large nut in the week to February 15, 2024.

Farmgate prices in Kurunegala were 70,000 to 75,000 rupees per 1,000 nuts up from 70,000 -72,000 per 1000 nuts a week ago.

Coconut oil was 570,000 to 590,000 rupees per metric ton from last week’s 580,000- 600,000.

Coconut shells were 28,000 to 29,000 rupees a metric ton up from last week’s 26,000-28,000. (Colombo/Mar01/2024)

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