Ravi tells private sector not to maintain two accounting books
Sri Lanka’s private sector was urged to discontinue keeping two accounting books – one to pay and the other to avoid, and to pay taxes while reaping the benefits of the proposals in the new budget.”The private sector had a feeling that there was nothing happening since the new government took over but the glaring corruption was eliminated,” Finance Minister Ravi Karunanayake said, addressing a post-Budget Forum hosted by Ernst & Young earlier this week.
He said that the ‘disastrous’ economy the new regime inherited required time to be properly and carefully handled, and now it is at a ‘manageable situation’ with a number of measures taken by them.”We wanted to rectify many areas that we thought were archaic. The laws in place were those that existed from the British rule. We wanted to get that corrected. Old laws that have been discouraging investments are now completely modernised. The tax structure is one of them. That has been the rationale behind our thinking,” Mr. Karunanayake said.
He added that theirs’ is a humane government. “We are not saying that we have presented the best budget but certainly we have eradicated 95 to 97 per cent of the nagging doubts. We have showcased ourselves from the Finance Ministry point of view and we certainly will call many of you to be part of the implementing team.”
Win -win
He said that the government is ready to listen and correct the lapses. “If we have done something wrong on the 20th (the day the budget was presented), we are ready to correct it even tomorrow. But let it be on a win-win basis.There is no way we are going to be putting Rs. 99 out to get Rs.1. We don’t mind putting Rs. 50 out to get Rs. 50 back. That is the 2016 Budget that we have presented.”
Mr. Karunanayake said that with the public private partnership they have put a stop to unsolicited proposals. “With this move the private sector has the ability to come up with new ideas and to execute them with Government officials. There are two options, where a public tender will be taken on, the next one is taking the Swiss model as the benchmark,” he said, adding that if the government comes forward with the assets, the private sector is urged to come up with an opportunity.
“If we take expressways as an example, up to now only two or three countries give loans and the people in Sri Lanka get the burden of the interest. What we have to do is to ensure that the capital comes from foreign sources, and the private sector maybe involved in infrastructure.”
Good moves at CSE
Duminda Hulangamuwa, Partner Ernst & Young noted that the profit from the sale of shares quoted in the Colombo Stock Exchange (CSE) will not be liable to income tax unless such gain is a capital gain. This will be consequent to the proposal to abolish the share transaction levy by means of the new budget.Analysts hailed the proposal which encouraged banks to lend to customers who engaging in stock market activities.”Abolishing the Securities Investment Accounts (SIA) is positive for the industry. There is less complications for the foreign investors,” an analyst said on the sidelined of the Ernst & Young forum.
He added that the Share Transaction Levy which charges 0.3 per cent from the buyer and seller on each share transaction which will be removed is a good move. CSE transaction cost was considered to be one of the highest in the frontier markets. One analyst said the proposed minimum amount of dividend to be distributed by quoted companies to be increased to 15 per cent of the distributable profits will see higher dividends.
“The proposal that introduces Listed Real Estate Trusts (REITs) and to transfer real estate assets to a REIT structure that distributes 90 per cent or more of income to REIT unit holders is positive for the industry. The CSE currently offers limited number of instruments and such measures would improve the product offering of CSE and it will attract both local and foreign investors,” he explained.
On the amalgamation of ETF and EPF, Mr. Karunanayake said that the government had the courage to mention it, but as soon as it happened all the unions were against it. “We had to invite them to discuss and I must say 90 per cent accepted the spirit in which it was proposed. It’s not only about the amalgamation of the two funds, EPF is different to ETF. So as a result we have to incorporate after discussing with all of them. I’m sure within the next four months we will be able to come into a conclusion.”
SL taxes lowest in the region
Mr. Hulangamuwa said that Sri Lanka’s new standard tax rate of 15 per cent and VAT of 8 per cent is one of the lowest in the region while being only above Ireland and Germany. “In a personal tax view point Sri Lanka is the most attractive for people to work in terms of tax. In the region we are paying the lowest tax rate,” he assured.Meanwhile, a report by HSBC Global Research showed that the fiscal deficit has been kept wide at 5.9 per cent of GDP to support a big push in public capital spending. “New tax proposals, sadly, do not cast a wider net on income; instead it relies even more heavily on consumption based taxes.
While new tax measures are realistic, tax buoyancy estimates adjusted for these new measures are quite high. The pro-growth stance of the government should keep the central bank watchful on aggregate demand, although reforms announced in the have the potential to preserve macro-economic stability by improving the quality of financing flows and the quality of growth,” it said. Mr. Karunanayake, participating at another post-Budget Forum hosted by HSBC, said that the new government wants to replace aid with trade, which the Central Bank Governor Arjuna Mahendren endorsed saying that the country doesn’t need to raise interest rates at present and that it doesn’t need the money (from IMF) “Whether we apply for a different issue. Right now we don’t need the money.”
The HSBC report said that the tax policies announced in the budget are counter to expectations. “For example, new tax measures will worsen the ratio between direct and indirect taxes, which goes against the stated policy of improving direct tax collection to 40 per cent of total. Also there has been no attempt to broaden the tax base. In fact, more people have been excluded from income taxes and the tax incidence on corporates has been lowered. While the new revenue measures are realistic, to reach the projected tax collection growth, tax administration will have to improve. It is quite possible that the government is taking a long-term view on tax policies too, taking the impact of streamlining now for a benefit down the road.”