Unfair taxes on Sri Lanka’s banking and finance sector
View(s):Sri Lanka’s banking and finance sector has been treated unfairly by the government when charging taxes from the entities in this sector, experts say.
Unlike other companies, barring tobacco and liquor firms, the banks and finance companies pay nearly 60 per cent in taxes to the government. “We pay collectively 60 per cent from our profit before taxes,” a CEO of a finance company told the Business Times.
It turns out that the banking and finance sector pays over US$1billion which translates to around Rs. 160 billion in taxes to the government annually under the present taxation system.
These taxes include 28 per cent in income tax, 15 per cent VAT, 7 per cent debt repayment levy and 2 per cent Nation Building Tax. So it’s 52 per cent in taxes. Bankers say that when computing taxes on a profit before tax base after adding employee salaries etc, it comes to some 57 per cent in taxes.
The reason to tax this sector seems almost sinister. As one CEO put it, it’s almost as if these entities are penalised for doing well.
So how are the banks and finance companies reporting such stellar profits? All major banks and sound finance companies don’t seem to be affected by these taxes. This is so because they invariably pass these taxes on to the customer. As one CEO put it, “ultimately it is the public that suffer with these taxes.”
Another sector expert said that the government treats the banking and finance sector companies like they do with the liquor companies when slapping taxes. This (liquor) sector pays almost 92 per cent in taxes. The expert also added that the government is the major beneficiary of these taxes earning nearly 60 per cent whereas the shareholders get 40 per cent of the profits. “This is not fair. They are taxing the golden goose.”
They urged that the government must not discriminate the sector when taxing. Analysts say that as operating conditions continue to be difficult against a challenging macroeconomic backdrop this regressive taxation is expected to continue to pressure bank performance in the short to medium term.
A CEO of a major bank noted that the government should not target individual sectors or industries just because they are ‘ easy ‘. “The banking and finance sector is easy to target. Successive governments have done so in the past,” he said.
A finance company CEO told the Business Times that each owner of a leased three wheeler costing Rs.400,000 has to pay Rs. 1,500 each month to the finance company.
This means that the finance company has also passed their tax invariably on to the three wheeler owners. Rightly or wrongly this has been done by the companies and the banks. “So the Government’s objective in taxing the banking and finance sector has fallen flat,” he said.