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Sunday February 25th, 2024

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 could get US$500mn from ADB in 2024

ECONOMYNEXT – Sri Lanka could receive 500 million US dollars in support from the Asian Development Bank in 2024 based on the progress of policy reforms, Country Director of the Manila-based lender, Takafumi Kadono said.

The ADB expect to go to its Board around March or April with a 100 million US dollar power sector loan subject to the cabinet of ministers of approving a revised electricity reform bill.

A 100 million dollar loan to support SMEs could also be approved in the early part of the year. Sri Lanka is setting up a credit guarantee agency to support credit for small firms.

A 200 million dollar credit for financial sector was also slated for the year. The ADB gave the first tranche of the financial sector policy loan late last year.

A $100mn for the water sector could also be approved later in the year.

Sri Lanka could get around 200 to 300 million US dollars a year at the lowest rate, or concessional ordinary capital resources (COL) rate of 2 percent.

The balance of would come at the ordinary capital resource rate linked to SOFR.

The ADB has also started work on a ‘Country Partnership Strategy’ for Sri Lanka covering the 2024-2028 period, Kadodo said. (Colombo/Feb25/2024)

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Sri Lanka’s multi-aligned foreign policy based on friendship: Min

ECONOMYNEXT – Sri Lanka’s multi-aligned foreign policy is based on friendship to all and enmity to none, its Minister of Foreign Affairs has said.

“Non-alignment means not becoming a bystander. Non-alignment means you are not forced or coerced into a camp to take sovereign decisions… you make your own choices. Whether it is commercial, security, regional or otherwise,” M U M Ali Sabry said on X (twitter).

“I have repeatedly stressed that sovereignty is the right to have your own opinion on what’s right and wrong, and to stand by your principles. Our multi-aligned foreign policy is based on friendship to all and enmity to none,” Sabry was quoting from his speech at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) Foreign Policy Forum, on the theme ‘Reassessing Non-Alignment in a Polarised World’.

Sri Lanka is one of the founding members of the Non-Aligned Movement.

The strategically located island has been increasingly walking a fine line between opposing global factions as it seeks to come out of a financial crisis. (Colombo/Feb24/2024)

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Sri Lanka’s Commercial Bank Dec net down on tax provisions

ECONOMYNEXT – Sri Lanka’s Commercial Bank of Ceylon reported profits of 6.9 billion rupees from the December 2023 quarter down 21 percent, despite an improvement in net interest income and lower provisions, amid a change in tax provisions.

Pre-tax profits were 8.89 billion rupees up from 2.4 billion rupees. There was a 6.4 billion tax reversal last year compared to a 1.7 billion rupee tax charge this year.

Commercial Bank reported earnings of 5.26 rupees for the quarter. For the year to December 2023 earnings were 16.07 rupees per share on total profits of 21.1 billion rupees, down 11.3 percent.

Net fee and commission income was down 1.2 percent to 6.1 billion rupees.

Net interest income went up 16.8 percent to 25.5 billion rupees, with interest income rising marginally by 1.3 percent to 73.0 billion rupees and interest expense falling 5.45 percent to 47.5 billion rupees.

Loans and advances to customers grew 4.06 percent to 1.17 billion rupees in the year to December. Debt and other financial instruments fell 10.5 percent to 649 billion rupees.

Financial assets measured and fair value through other comprehensive income was at 287 billion rupees, up from 117 billion rupees.

Impairment charges were 13.1 billion rupees, down from 19.6 billion rupees last year.

Gross assets were up 6.45 percent to 2.36 billion rupees. Net assets were up 5.51 percent to 214 billion rupees. (Colombo/Feb24/2024)

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