Tough new measures to avert an economic crisis are now engaging the attention of the Government. The first of these was decided upon at a special meeting of ministers on Friday(4 March).
Here are the policy proposals recommended by Premier Wickremesinghe and approved by the Cabinet of Ministers on Friday:
VALUE ADDED TAX: The budget 2016 proposed to implement two VAT rates – 8% and 12.5% instead of a single rate of 11%
Implementing such complex multi rates in tax can result in a shortfall in revenue target further deepening the crisis. Therefore, the safer option is a single VAT rate of 15%. The exemptions on telecommunication, private education and private health will be removed. Furthermore VAT will also be imposed on selected retail and wholesale items excluding the essential items.
INCOME TAX: Non-corporate Income Tax and Corporate Tax: It is proposed to suspend the 2016 Budgetary proposals for one year and continue the 2015 tax rates for both sectors.
Corporate Income Tax: For all other sectors which were subjected to different tax rates earlier, it is proposed to impose 17.5% rate instead of 15% rate proposed in the Budget 2016. CAPITAL GAINS TAX: Capital Gains have not been taxed in Sri Lanka since 1987. The last decades have seen a massive increase in private capital in the country especially among the higher echelons of society. Increase on price of land and shares have enabled them to make massive capital gains free of taxation while the indirect taxes on the masses kept increasing. The last ten years have seen the rise of inequality. Fortunately the relief measures given in the Budget 2016 have enabled to aggregate demand to pick up. Therefore it is proposed to implement Capital Gains Tax.
NATION BUILDING TAX: Sri Lanka has two types of consumer taxes. One is the NBT, which is based on turnover. Therefore, increasing NBT rate from 2% to 4% as proposed in the Budget 2016 in the background of weakening global currency which may lead to cascading effects on the economy and to a marked increase in the cost of living. Hence, it is proposed to keep the existing NBT rate of 2% unchanged to ensure business development and prevent cascading effects. It is assumed that the new proposal to remove exemptions on electricity, lubricants and telecommunication will be implemented while reducing the threshold to Rs. 3 million from Rs. 3.75 million per quarter as proposed in the Budget 2016.
TITLE DEEDS FOR ALL: With these physical consolidations and with the intention of having asset-owned society, the people who are living under permits and tenancies will be empowered by bestowing freehold title deeds to more than one million individuals with immediate effect.
Now that these proposals have been approved, Premier Wickremesinghe has observed that the overall budget deficit will decline to 5.4% of GDP (Rs. 679 billion) from 5.9%. He has said that the Cabinet Sub Committee on Economic Management will where necessary determine further expenditure restraint on recurrent expenditure as to ensure that they will adhere to the targets. Furthermore, he has added, a committee of three, including the Secretary to the Treasury entrusted with implementing the new tax reforms and ensure that revenue agencies adhere to the targets.
Source: Sunday Times