Business

Supporting the Increase in Withholding Tax: A Step Toward Strengthening Sri Lanka’s Tax System

Published

1 year ago

2024/12/29

By Sanjeewa Jayaweera

The government’s decision to increase the withholding tax (WHT) rate to 10%, effective 1 April 2025, deserves commendation. Too often, political leaders have avoided necessary but unpopular decisions, opting to appease the electorate. This has led to various issues, from economic stagnation to the erosion of minority and religious rights. The proposed tax increase, however, marks a significant step in addressing a pressing concern: Sri Lanka’s persistent tax evasion problem.

Tax evasion in Sri Lanka is alarmingly high. While some degree of evasion is common in many countries, effective tax compliance is largely achieved through a comprehensive tax policy and an efficient tax administration. Unfortunately, Sri Lanka has fallen short in both these areas. Since the early 1990s, successive governments have either reduced or eliminated key taxes, granted widespread exemptions, and failed to adequately develop the Inland Revenue Department (IRD) in terms of manpower and technology.

Rather than addressing these systemic issues, governments have relied on increasing indirect taxes. The contribution of direct taxes to overall revenue has fallen to a mere 20%. Indirect taxes, such as Value Added Tax (VAT), are largely hidden from the consumer, as the IRD has mandated that supplier invoices do not show VAT charged. This has created a society that is not accustomed to paying direct taxes. Additionally, the acceptance of corruption as a “necessary evil” has contributed to the perception that tax evasion is acceptable.

Consequently, the imposition of new taxes, rate increases, and threshold reductions often generates confusion and frustration among the public. Opposition parties frequently exploit these sentiments to mislead the electorate, complicating the government’s efforts. To counter this, the government must invest in educating the public about taxes, the need for tax revenue, and the civic duty of tax compliance. This is a long-term effort that, if successful, could lead to improved tax revenues and higher compliance rates.

Policymakers should consider insights from an OECD report published in 2021, which analyzed taxpayer education initiatives in 59 developed and developing countries. The report revealed that over 80% of such initiatives improved tax morale—the intrinsic motivation to pay taxes. The findings underscore the importance of tax literacy in shaping a culture where citizens understand how their tax contributions affect their daily lives.

The report suggests a step-by-step approach for designing and implementing taxpayer education initiatives customized to local contexts. Three key strategies for promoting tax compliance emerged:

· Teaching tax: Engaging all audiences, including youth, adults, and entrepreneurs, through long-term educational programs.

· Communicating tax

: Raising awareness through campaigns, tax fairs, TV shows, and behavioural economics-based messaging.

· Supporting compliance

: Providing practical assistance, particularly for vulnerable taxpayers, to navigate modern e-administration tools and fulfill reporting requirements.

Verité Research, an independent think tank, has long advocated increasing the WHT rate on interest income from 5% to 10%. Their estimate suggests that this increase could generate an additional Rs. 90 billion in revenue for the state. Despite this, the government of Ranil Wickremesinghe hesitated to act, even though it had already raised VAT to 18% and introduced progressive income tax rates as high as 36% and reduced the monthly tax-free threshold to Rs. 100,000.

Importantly, WHT on interest income is not an additional tax; it is a prepayment of taxes collected by the payer on behalf of the government, similar to the Pay As You Earn (PAYE) system used for salaried employees. The challenge, however, lies in the fact that individuals often earn interest from multiple banks, unlike salary income, which typically comes from a single employer. As a result, financial institutions cannot easily determine whether an individual’s total income surpasses the annual tax-free threshold of Rs. 1,200,000 (or Rs. 1,800,000 starting April 2025).

To address this, the IRD should implement a system allowing individuals over 18 to obtain a letter from the IRD confirming that WHT need not be deducted if their total annual income is below the threshold. While this will initially be challenging due to the lack of tax files for many individuals, it is a step that should be supported. Despite its complexities, the government’s decision to increase the WHT rate should be backed.

To illustrate the impact of this change, consider the following examples assuming the person’s total income is derived solely from interest:

Total Income Tax Due:

· Income: Rs. 5,000,000

· Single Person Allowance

: Rs. 1,200,000

· Taxable Income

: Rs. 3,800,000

· Income Tax at Progressive Rates

: Rs. 918,000

· Less WHT Collected at Source

: Rs. 250,000

· Tax Evaded

: Rs. 668,000

With the WHT Rate Increase:

· Income: Rs. 5,000,000

· Single Person Allowance

: Rs. 1,200,000

· Taxable Income

: Rs. 3,800,000

· Income Tax at Progressive Rates

: Rs. 918,000

· Less WHT Collected at Source

: Rs. 500,000

· Tax Evaded

: Rs. 418,000

As illustrated, raising the WHT rate to 10% would generate an additional Rs. 250,000 in tax revenue. I have assumed in my illustration that the recipient of interest income is not tax-compliant and is currently outside the tax net. This demonstrates how the rate increase could significantly reduce tax evasion. The IRD’s ultimate goal should be to recover the Rs. 418,000 currently evaded by taxpayers. By streamlining the reporting systems of financial institutions and integrating them with the RAMIS system, the IRD can take a significant step toward curbing tax evasion and boosting government revenue.

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Business

SpaceX IPO debuts in US markets, Musk becomes world’s first trillionaire

Published

4 hours ago

2026/06/13

Priyan

The Musk led company sold $75bn in shares before the market debut [Aljazeera]

SpaceX has debuted on US markets with a market valuation of more than $2 trillion, minting CEO Elon Musk as the world’s first trillionaire.

Shares opened on Friday at $150 per share, marking a 11 percent increase from the initial public offering (IPO) price of $135, valuing the company at $1.96 trillion and putting the aerospace company on track to become the sixth-largest company in the United States.

The stock surged 18 percent to $159 per share, up from the $135 it had been priced at, as the trading day came to a close.

Markets more broadly ticked higher amid a possible interim peace deal between the United States and Iran that could open the Strait of Hormuz. The Dow Jones Industrial Average is up 0.6 percent, the Nasdaq is up 0.2 percent, and the S&P 500 is up 0.35 percent as trading wraps up for the week.

The company sold $75bn in shares, immediately valuing it at $1.77 trillion. The IPO was oversubscribed four times higher than was otherwise expected, according to the Reuters news agency.

Of the institutional investors allocated, according to Bloomberg News, as much as 70 percent went to what are called long-only investments — a strategy in which holders buy assets based on the expectation that their value will grow over time — and sovereign wealth funds, including those from Saudi Arabia and Kuwait as well.

SpaceX President Gwynne Shotwell and Chief Financial Officer Bret Johnsen rang the opening bell at Nasdaq MarketSite in New York City at 9:30am local time as US markets opened.

On Thursday, protesters gathered outside the MarketSite to protest the IPO amid continued allegations that Grok, part of xAI, a subsidiary of SpaceX, allowed users to create non-consensual deepfake sexualised images before the IPO debut.

Shares of SpaceX did not trade until the middle of the trading day as the exchange collected buy and sell orders and underwriters delayed trading until supply and demand were balanced.

“We would expect SpaceX to see an immediate pop in trading due to the hype around the deal, north of 20 percent perhaps,” said Samuel Kerr, global head of equity capital markets at Mergermarket. “Anything lower would actually make me nervous.”

Exchanges and trading firms are eager to avoid the technical mishaps that marred Meta’s 2012 debut. With SpaceX widely viewed as a dress rehearsal for a new generation of mega-listings, market participants will also be watching for signals on investor appetite in advance of forthcoming IPOs for AI heavyweights Anthropic and OpenAI.

The landmark listing cemented Musk’s status as the first trillionaire ever and propelled SpaceX into the ranks of the world’s most valuable companies — even though the firm posted a loss of nearly $5bn last year and generated only a fraction of the revenue brought in by similarly valued tech giants.

The surge comes amid growth driven by its Starlink subsidiary, which drives as much as 80 percent of its revenue.

On Friday, SpaceX launched its Falcon 9 rocket with 29 satellites into space from Cape Canaveral in Florida.

[Aljazeera]

Business

Indo-Lanka Chamber hosts dialogue on Sri Lanka’s investment future

Published

7 hours ago

2026/06/13

Thilina Walpola

Interactive session with Aritha Wickramasinghe

The Indo-Lanka Chamber of Commerce & Industry (ILCCI), affiliated to The Ceylon Chamber of Commerce, hosted an interactive session on Sri Lanka’s Investment Future: Policy, Opportunity & Growth at Jetwing Colombo Seven. The session was attended by Dr. Satyanjal Pandey as Chief Guest, while Aritha Wickramasinghe delivered the keynote address in his capacity as Chief of Staff to the Office of the Presidential Special Envoy on Foreign Investment, Hanif Yusoof.

ILCCI President M. Raghuraman, in his remarks, expressed appreciation to Dr. Pandey for his service during his tenure in Sri Lanka and underscored the timeliness and importance of the session topic in the context of the current global economic and geopolitical climate.

Addressing the gathering, Dr. Pandey observed that in a period marked by geopolitical and economic turbulence – reliability, trustworthiness, and secure supply chains have become increasingly important. He also highlighted the strong and growing economic partnership between India and Sri Lanka, noting several significant Indian investments in Sri Lanka, including those by ITC Limited and CEAT Limited, while indicating that further investments are expected in the future.

As a representative of the state, Aritha Wickramasinghe stated that it is the responsibility of the government to ensure that, even amid global turbulence, Sri Lanka remains stable in its policy direction, credible in its economic management, and consistent in its engagement with investors. He also emphasised the opportunities available to the Sri Lankan economy through deeper engagement with India’s fast-growing economy, noting that while India and Sri Lanka are neighbours, the relationship is regarded as one of family rather than mere proximity.

The session which included a highly engaging and interactive Q&A session with the audience, concluded with a productive exchange of views between the distinguished guests, speakers and participants, reaffirming the importance of continued dialogue and collaboration in strengthening investment and economic ties between Sri Lanka and India.

Business

Australia and Sri Lanka strengthen maritime security partnership

Published

7 hours ago

2026/06/13

Thilina Walpola

The Australian Border Force and Sri Lanka Coast Guard have launched Disi Rela 2026, marking the third consecutive year of the joint maritime security initiative aimed at strengthening maritime surveillance, operational capability, and public awareness across Sri Lanka’s coastal regions.

This year, Disi Rela 2026 expands its community engagement and public awareness activities to Sri Lanka’s Eastern Province, following successful activations conducted in the Western and Southern Provinces in previous years.

Meaning “keeping a watchful eye over the maritime environment,” Disi Rela reflects the continued partnership between Australia and Sri Lanka to strengthen maritime security, combat transnational maritime crime, and promote safer seas across the region. Through intelligence sharing, operational cooperation, advanced equipment support, and public awareness initiatives, both countries continue to work together to address threats including people smuggling, drug trafficking, illegal fishing, and other unlawful maritime activities.

Over the past three years, the Australian Government has supported Sri Lanka’s maritime security efforts under the Disi Rela initiative through the donation of 24 surveillance drones, three all-terrain vehicles (ATVs), three Stabicraft patrol vessels, and the establishment of a dedicated 24/7 hotline number — 106.

Further strengthening Sri Lanka Coast Guard’s operational capability, the Australian Government will donate an additional five all-terrain vehicles (ATVs) under Disi Rela 2026 to support coastal surveillance and rapid response operations.

In reflecting upon the continued partnership and shared commitment of both nations to safeguard Sri Lanka’s maritime boundaries and coastal communities, the Director General of the Sri Lanka Coast Guard,