The Proposed Changes To The Tax System
Much to everyone’s surprise, the Former President of Sri Lanka, Mahinda Rajapaksa was sworn in as the new Prime Minister on 26th of October 2018. Upon his rise to power, amidst the backlash and social complications that have seen to be on the high, the new Prime Minister has given direction to implement a range of initiatives with which to revive the Lankan economy.
After raising concerns on the serious setback in the economy in recent years, the Prime Minister and Minister of Finance and Economic Affairs has given direction to implement the following measures;
- Understanding the increase in the cost of living during recent years, while taking into consideration the benefit of local farmers, a special commodity levy is to be reduced for
- Dhal by Rs.5 per Kilogram
- Black Gram by Rs.25 per Kilogram
- Chickpeas by Rs.5 per Kilogram
- Sugar by Rs.10 per Kilogram
- Seeing the requirements of fertilizer for cultivation, the prices of Fertilizer will also be amended as follows
- Fertilizer for paddy will be maintained at Rs.500 per 50kg bag
- Fertilizers for other crops that cost Rs.1500 per 50kg bag will be reduced to Rs.1000 per bag
- Realizing the effects adverse weather conditions would’ve had on the livelihoods of local farmers, to mitigate their levels of debt, all interest and penal interest charged on any and all loans (of up to 50 million) obtained by these farmers from Commercial Banks during the last 3 years will be waived off, and borne by the Government.
- Samurdhi banks will increase the maximum threshold awarded to Samurdhi beneficiaries by Rs.10,000/-
- For locally produced paddy, onions and potatoes, the SCL will be maintained at Rs.40 per Kg.
- There is an income tax rate of 14% applied on agriculture for all companies occupied in agricultural business. To encourage individual farming and agriculture, the income of individuals from agricultural undertakings will also be reduced from the existing maximum rate of 24% to 14%.
- As a means of encouraging local entrepreneurs, migrant workers and professionals to remit their earnings from any services provided outside of the country in foreign currency, the income tax charged on such remittances will be exempted.
- The VAT threshold will be increased from 12 million per annum to 24 million per annum as a means of mitigating the adverse impacts caused by high indirect taxes.
- In support of the construction industry, the VAT rate applied to imported Sawn Timber will be reduced to 5%
- In aid of Garment Manufacturers, there will be no VAT when importing fabric.
- The telecommunication levy of 25% will be reduced to 15%
- In hope of providing some benefit to small-scale tradesmen and businesses, the threshold for the VAT liability of the wholesale and retail sector will also be increased from Rs. 50 million to Rs.100 million.
- The income tax rate for professional services will be reduced from 24% to 14%.
- Understanding the severe impact fuel pricing has on the rest of the economy, fuel prices are to be subjected to a number of changes
- Petrol (Octane 92) will be reduced by Rs.10 per litre
- Auto Diesel will be reduced by Rs.7 per litre
- Lubricants (such as 2T) will be reduced by Rs.10 per litre
- For any Savings or Fixed Deposits maintained in any Financial Institutions, the withholding tax will not consist of Interest.
These changes will be imposed as means of encouraging localized production of goods and services. They are also said to help simplify the tax system, and encourage inward remittances as well as savings.
The newly appointed Prime Minister is fairly certain that these changes will bring about a positive shift in Sri Lanka’s economy, and help mitigate certain issues that have been identified. Will these policies help stabilize the Lankan economy? I guess we’ll just have to wait and see.