Sri Lanka hikes VAT, taxes capital gains before IMF loan talks
COLOMBO | BY SHIHAR ANEEZ AND RANGA SIRILAL
Sri Lanka will raise its value added tax and reintroduce capital gains tax to break out of a debt trap, Prime Minister Ranil Wickremesinghe said on Tuesday, ahead of talks on a $1.5-billion loan it is seeking from the International Monetary Fund.
Sri Lanka's finances are under scrutiny after ratings agency Fitch last week downgraded its sovereign rating by a notch, to "B+", spurred by a ballooning fiscal deficit, rising foreign debt and sluggish growth prospects.
It also faces a balance-of-payments crisis after a third of its foreign exchange reserves was depleted within the 15 months to January by the central bank's defence of the rupee currency, pressured by heavy debt piled up under the previous government.
"This crisis can be overcome only by reducing the budget deficit and a medium-term joint financial programme aiming at suitable reforms to reduce the debt burden," Wickremesinghe told lawmakers.
Taking action to boost revenues, he announced that VAT would be hiked to 15 percent from 11 percent, while capital gains will be taxed for the first time since 1987.
Wickremesinghe said the government owed 9.5 trillion rupees ($65.6 billion), as he revised some of the main budget numbers presented in November.
He said the former government headed by Mahinda Rajapaksa has not included 1.04 trillion rupees in borrowing by state enterprises in the national debt, which was estimated at 8.48 trillion rupees at the end of last year.
The prime minister, also the minister of policy planning and economic development, said the country has to pay 1.21 trillion rupees on its debts this year, including 562 billion rupees in interest.
The uncertainty over taxes also hit the rupee LKR=LK currency.
"The government is responding to an urgent revenue need," Anushka Wijesinghe, the chief economist of Sri Lanka's main business chamber, told Reuters.
"But ad hoc tax policy changes like these will hurt investor sentiment. The credibility of the budget is lost."
($1=144.8500 Sri Lankan rupees)
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Douglas Busvine and Clarence Fernande
================
VAT A Let-Down!
by Ashanthi Warunasuirya
Having failed to secure the much anticipated foreign assistance to carry out its promises, the government is now looking at increasing taxes. However, sustaining political power at the expense of the people is hardly justifiable. It is a known fact that a government cannot survive without taxes. In order to cover its daily expenses, every government imposes direct taxes upon the income of the rich and indirect taxes upon consumer goods such as fuel, communication and food items. However, there has to be a just basis when imposing taxes. Hence it is important to analyse how just the May 2016 tax hike is.
The government has been forced to increase taxes as they currently do not have enough finances to carry out the promises made to the people during the polls. Although the Yahapalana administration had high hopes of receiving international financial assistance, it has not become a reality. In reality, no foreign country is willing to provide money for a government to carry out its election promises. Thus the government has been compelled to turn back towards the very people they had previously deceived.
Some would opine that this is a fraud being committed in broad daylight. The Value Added Tax (VAT) that previously stood at 11 percent has been increased to 15 per cent with effect from May 2. According to Finance Minister Ravi Karunanayake, the education and pharmaceutical sectors have been exempted from this increase. Accordingly, import or export of communication equipment including copper cables for the telecommunication industry and the issue of licences to local telecommunication operators by the TRC are liable for increased VAT. The supply of goods and services to any specified project other than housing projects approved on or after May 5 will also be taxed.
Expressing his views on the recent tax hike, former President Mahinda Rajapaksa has said that the present government made irresponsible promises at the presidential election in order to win votes. He has said that after winning, they had to fulfill at least some of their election pledges if they were to win the parliamentary election.
Rajapaksa has said that for more than a year now the government has been borrowing heavily in the foreign as well as domestic markets to pay for the salary increases and various handouts they gave in its bid to win the election. Rajapaksa has said that after January 2015, the government has obtained USD7,436 million in foreign loans, nearly half of which (USD3,298 million) has to be paid back before the end of this year, apart from the hundreds of billions of rupees the government has been borrowing in the domestic market by issuing treasury bills and bonds. According to him, the government is now trying to collect taxes from the people to repay these debts. While the former President made these comments on tax hikes, Media Minister Gayantha Karunathilake called these taxes ‘Rajapaksa taxes.’ He has said the government has been compelled to increase taxes in order to save the country as they have been given the country amidst immense financial debts. Pointing out that the economy has to be managed with the commitment of all, the minister has further said that VAT has been increased with a minimum burden to the people. He has also said that conditions would be more favourable after the Prime Minister’s oncoming China tour and the President’s Japan visit.
However, various social groups have expressed different views on this matter. Accordingly, the national organiser of the All Island Cafeteria Owners Union, Asela Sampath said the prices of food items sold in cafeterias will be increased parallel to the 15 per cent VAT increase. He said the prices of food items will be increased at least by 10 rupees.
COLOMBO | BY SHIHAR ANEEZ AND RANGA SIRILAL
Sri Lanka will raise its value added tax and reintroduce capital gains tax to break out of a debt trap, Prime Minister Ranil Wickremesinghe said on Tuesday, ahead of talks on a $1.5-billion loan it is seeking from the International Monetary Fund.
Sri Lanka's finances are under scrutiny after ratings agency Fitch last week downgraded its sovereign rating by a notch, to "B+", spurred by a ballooning fiscal deficit, rising foreign debt and sluggish growth prospects.
It also faces a balance-of-payments crisis after a third of its foreign exchange reserves was depleted within the 15 months to January by the central bank's defence of the rupee currency, pressured by heavy debt piled up under the previous government.
"This crisis can be overcome only by reducing the budget deficit and a medium-term joint financial programme aiming at suitable reforms to reduce the debt burden," Wickremesinghe told lawmakers.
Taking action to boost revenues, he announced that VAT would be hiked to 15 percent from 11 percent, while capital gains will be taxed for the first time since 1987.
Wickremesinghe said the government owed 9.5 trillion rupees ($65.6 billion), as he revised some of the main budget numbers presented in November.
He said the former government headed by Mahinda Rajapaksa has not included 1.04 trillion rupees in borrowing by state enterprises in the national debt, which was estimated at 8.48 trillion rupees at the end of last year.
The prime minister, also the minister of policy planning and economic development, said the country has to pay 1.21 trillion rupees on its debts this year, including 562 billion rupees in interest.
The IMF has long called on Sri Lanka to reduce its budget deficit, raise revenues, and bolster its foreign exchange reserves. These are likely to be the main conditions for the grant of a loan, economists say.Sri Lankan shares fell more than 2 percent on Tuesday, hitting a near two-year low on concerns over the government's possible tax hikes to qualify for what the finance ministry expects will be a $1.5-billion IMF loan. [nL3N1633XT]
The uncertainty over taxes also hit the rupee LKR=LK currency.
"The government is responding to an urgent revenue need," Anushka Wijesinghe, the chief economist of Sri Lanka's main business chamber, told Reuters.
"But ad hoc tax policy changes like these will hurt investor sentiment. The credibility of the budget is lost."
($1=144.8500 Sri Lankan rupees)
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Douglas Busvine and Clarence Fernande
================
VAT A Let-Down!
by Ashanthi Warunasuirya
Having failed to secure the much anticipated foreign assistance to carry out its promises, the government is now looking at increasing taxes. However, sustaining political power at the expense of the people is hardly justifiable. It is a known fact that a government cannot survive without taxes. In order to cover its daily expenses, every government imposes direct taxes upon the income of the rich and indirect taxes upon consumer goods such as fuel, communication and food items. However, there has to be a just basis when imposing taxes. Hence it is important to analyse how just the May 2016 tax hike is.
The government has been forced to increase taxes as they currently do not have enough finances to carry out the promises made to the people during the polls. Although the Yahapalana administration had high hopes of receiving international financial assistance, it has not become a reality. In reality, no foreign country is willing to provide money for a government to carry out its election promises. Thus the government has been compelled to turn back towards the very people they had previously deceived.
Some would opine that this is a fraud being committed in broad daylight. The Value Added Tax (VAT) that previously stood at 11 percent has been increased to 15 per cent with effect from May 2. According to Finance Minister Ravi Karunanayake, the education and pharmaceutical sectors have been exempted from this increase. Accordingly, import or export of communication equipment including copper cables for the telecommunication industry and the issue of licences to local telecommunication operators by the TRC are liable for increased VAT. The supply of goods and services to any specified project other than housing projects approved on or after May 5 will also be taxed.
Expressing his views on the recent tax hike, former President Mahinda Rajapaksa has said that the present government made irresponsible promises at the presidential election in order to win votes. He has said that after winning, they had to fulfill at least some of their election pledges if they were to win the parliamentary election.
Rajapaksa has said that for more than a year now the government has been borrowing heavily in the foreign as well as domestic markets to pay for the salary increases and various handouts they gave in its bid to win the election. Rajapaksa has said that after January 2015, the government has obtained USD7,436 million in foreign loans, nearly half of which (USD3,298 million) has to be paid back before the end of this year, apart from the hundreds of billions of rupees the government has been borrowing in the domestic market by issuing treasury bills and bonds. According to him, the government is now trying to collect taxes from the people to repay these debts. While the former President made these comments on tax hikes, Media Minister Gayantha Karunathilake called these taxes ‘Rajapaksa taxes.’ He has said the government has been compelled to increase taxes in order to save the country as they have been given the country amidst immense financial debts. Pointing out that the economy has to be managed with the commitment of all, the minister has further said that VAT has been increased with a minimum burden to the people. He has also said that conditions would be more favourable after the Prime Minister’s oncoming China tour and the President’s Japan visit.
However, various social groups have expressed different views on this matter. Accordingly, the national organiser of the All Island Cafeteria Owners Union, Asela Sampath said the prices of food items sold in cafeterias will be increased parallel to the 15 per cent VAT increase. He said the prices of food items will be increased at least by 10 rupees.
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