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Tuesday February 7th, 2023

Tax hikes could force Sri Lanka exporters shift to other countries – exporters

ECONOMY NEXT – Sri Lanka exporters could go to other lower taxed destinations if they cannot compete with the other foreign competitors after the latest tax hike proposed by President Ranil Wickremesinghe, the island nation’s dollar earners say.

Wickremesighe in his capacity as the finance minister has announced bold tax hike to raise the government revenue and reduce the budget deficit. Sri Lanka is in discussion for a $2.9 billion International Monetary Fund (IMF) loan and the global lender has requested some drastic measures to boost tax revenue as preconditions for the loan, government officials say.

The tax revenue is expected to be raised by 69 percent in 2023 to 3.13 trillion rupees compared to this year with increase in many taxes including personal taxes. The corporate tax is raised to 30 percent from 24,  most concessions given to economically important sectors were removed.

Key sectors amongst the affected are exports and agriculture where the tax rate was increased from 14 percent to 30 percent, exporters say.

“Exporters understand that we have to contribute in a bigger way in the current
circumstances. But the government should have discussed it with us before going up to 30 percent,” Rohan Masakorala, Director General of Sri Lanka Association of Manufacturers and Exporters of Rubber Products, told Economy Next.

Investors have already started to find other routes to continue their export business at a lower cost and they are likely to go to other export destinations and set up their business since they always look at the profit side of their business, exporters say as high taxes have discouraged them to invest in Sri Lanka in future.

“They will look at the tax benefits in those export countries and will invest in those countries,” Masakorala said.

“Investors coming into Sri Lanka for manufacturing and exporting will not see Sri Lanka as an attractive destination compared to other destinations. These are the challenges.”

Sri Lanka’s monthly good export earnings have been over $1 billon despite the unprecedented economic crisis. However, this earnings are expected to fall as looming global recession has reduced export orders from Sri Lanka.

Related: Looming global recession threatens dollar earning of Sri Lanka’s top exports

“The exporters begin transfer pricing and setting out partnerships in other countries, where the tax rates are between 12% to 15%. They can do their expansions in third countries,” Masakorala said.

“Since they are experienced and some of the products are experienced in different areas so they technically know how that market works. There are emerging markets where they call for investors.”

Value Added Tax (VAT) and Social Security Contribution Levy (SSCL) have already hit a booming IT sector, industry experts say.

The Joint Apparel Association Forum (JAAF), the body which deals with the country’s top export earnings garments, in a statement said the removal of the concessionary rate granted to exporters could make the country’s apparel industry “very uncompetitive when compared with regional peers”.

“The competitor countries’ tax  25 percent to 30 percent but effectively exporters pay about on average between 12 percent to 17 percent because of rebates and other benefits whereas in Sri Lanka exporters do not get that and the that leads to lower profitability,” Maskorala said. (Colombo/Nov26/2022)

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  1. Alpha says:

    Primarily it is important to ensure that the economy functions effectively. At present, interest rates, import restrictions etc are already killing businesses. New burdens will further lead to the collapse of the economy. It is important to tax the wealthy rather than the income earners.

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  1. Alpha says:

    Primarily it is important to ensure that the economy functions effectively. At present, interest rates, import restrictions etc are already killing businesses. New burdens will further lead to the collapse of the economy. It is important to tax the wealthy rather than the income earners.

Sri Lanka Railways to seek PPPs to boost revenue streams

CURFEW RUSH: Commuters scrambling to get home after curfew was declared in Sri Lanka on March 20, 2020.

ECONOMYNEXT – Sri Lanka Railway department hopes to expand Public Private Partnerships and earn more non-passenger revenues to offset recurring operational costs, an official said.

“For the past 10 years, except the last few years, the Railway operational income only covers around 50 percent of the operational expense of the Department,” the General Manager of the Railway, D.S. Gunasinghe told EconomyNext.

“Our plan is to increase the non-passenger revenue of the Railway department.

“And we cannot expect and do not hope for money from the government.”

Sri Lanka Railways already has agreements with Prima, a food firm, and Insee Cement, which is bringing in additional income, Gunasinghe said.

“We had agreements for material transportation such as sand in the past, however it was canceled but we hope to start it again” he said.

The department will rent out its storage facilities and circuit bungalows for the tourism sector to create additional revenue streams.

Sri Lanka Railways recorded an operating loss of 10.3 billion rupees during 2021, compared to a loss of 10.1 billion rupees in 2020, the Central Bank 2021 annual report showed.

The total revenue of the SLR stood at 2.7 billion rupees, a 41.3 percent drop from a year ago.

(Colombo/ Feb 06/2023)

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Sri Lanka’s doctors distribute anti-tax hike leaflets to train commuters

ECONOMYNEXT – Doctors representing Sri Lanka’s Government Medical Officers Association (GMOA) distributed leaflets outside the Colombo Fort railway station against a progressive tax hike, threatening to address the government in a “language it speaks”.

GMOA Secretary Haritha Aluthge told reporters outside the busy Fort railway station Monday February 06 afternoon that all professional associations have collectively agreed to oppose the personal income tax hike.

“The government is taking a lethargic approach. They cannot keep doing this. They have a responsibility towards the citizens, the country and society,” said Aluthge.

The medical officer claimed that the government was acting arbitrarily (අත්තනෝමතික).

“If it cannot understand the language they’ve been speaking, if the government’s plan is to put all professionals out on the street, if it doesn’t present a solution, all professional unions have decided unanimously to address the government in a language it speaks, ,” he said.

Aluthge and other GMOA members were seen distributing leaflets to commuters leaving the railway station. Doctors in Sri Lanka in general are likely to earn higher salaries than the average train commuter, and a vast majority of Sri Lanka’s population, most of whom take public transport, don’t fall into the government’s new tax bracket. Many doctors, though certainly not all, collect substantial sums of money at the end of every month as doctor’s fees in private consultations.

About two miles away from the doctors, the Ceylon Blank Employees’ Union, too, engaged in a similar distribution leaflet campaign on Monday at the Maradana railway station. A spokesman promised “tough trade union” action if there was no solution offered by next week.

Sri Lanka’s cash-strapped government has imposed a Pay As You Earn (PAYE) tax on all Sri Lankans who earn an income above 100,000 rupees monthly, with the tax rate progressively increasing for higher earners, from 6 percent to 36 percent.

A person who paid a tax of 9,000 rupees on a 400,000 rupee monthly income will now have to pay 70,500 rupees as income tax, the latest data showed. This has triggered a growing wave of anti-government protests mostly organised by public sector trade unions and professional associations.

Even employees of Sri Lanka’s Central Bank recently joined a week-long “black protest” campaign organised by state sector unions against the sharp hike in personal income tax, even as Central Bank Governor Nandalal Weerasinghe said painful measures were needed for the country to recover from its worst currency crisis in decades.

The government, however, defends the tax hike arguing that it is starved for cash as Sri Lanka, still far from a complete recovery, is struggling to make even the most basic payments, to say nothing of the billions needed for public sector salaries.

Economists say Sri Lanka’s bloated public service is a burden for taxpayers in the best of times, and under the present circumstances, it is getting harder and harder to pay salaries and benefits.

Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation say it serves as a disincentive to industry and capital which can otherwise be invested in growth and employment-generating business ventures. Instead, they call for a flat rate of taxation where everyone is taxed at the same rate, irrespective of income.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital, at least for a year or two.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and, they argue, though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair.  (Colombo/Feb06/2023)

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Sri Lanka bond Yields end steady

ECONOMYNEXT – Sri Lanka’s bond yields closed steady on Monday, dealers said while a guidance peg for interbank transactions remained unchanged.

A bond maturing on 01.07.2025 closed at 32.15/30 percent, steady from Friday’s 32.05/10 percent.

A bond maturing on 01.05.2027 closed at 28.90/29.10, steady from Friday’s 28.90/20.05 percent.

The Central Bank’s guidance peg for interbank US dollar transactions appreciated by one cent to 361.96 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 370.35 rupees on Monday, data showed. (Colombo/Feb 06/2023)

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