News
Lanka’s tax hike could force professionals to migrate – analysts
By SHIHAR ANEEZ
ECONOMYNEXT – Sri Lanka’s proposed tax hikes could force professionals out of the country as they discourage people who want to earn more and expand businesses, analysts say.President Ranil Wickremesinghe, who is also the island nation’s finance minister, through a gazette has proposed new tax rates, which if passed would bring Sri Lanka’s tax structure almost in line with 2019 before former president Gotabaya Rajapaksa removed many taxes in December that year.
The increase of tax revenue has become a must after the island nation declared sovereign debt default in April and as it is seeking a backing from an International Monetary Fund (IMF) for a loan and reforms.Anybody who earns more than 100,000 rupees monthly will have to pay tax in the proposed new tax amendment. That amount is 40 percent of the earlier threshold. The tax slabs of 500,000 rupee is taxed at an incremental 6 percent up to 36 percent.In addition to this, the corporate tax has been increased to 30 percent from a maximum of 24 percent.
However, analysts say the proposed tax hike will be seen as a disincentive because President Wickremesinghe is bringing the 2019 tax rates after an economic crisis and when the inflation is running at 70 percent.
“The sharp increase in personal income tax rates would discourage employment, negatively affect lives of the middle-class families and specially in an environment of high inflation could increase brain drain,” Danushka Samarasinghe, Chief Executive Officer/Director at Nation Lanka Equities (Pvt) Ltd told EconomyNext.
“Employees remain disproportionately affected since taxed at source with a sharp drop in disposable incomes which could also create a problem in personal debt servicing. This will be medium-long term negative for the country. A flat personal tax rate could have been more equitable and not discourage growth in incomes.”
He said the tax proposals “seem to be more of a knee-jerk measure in boosting government revenues” in the short term though it could have negative medium-long term impact.
“The 30% tax rate could be a disincentive for investment and job-creation. Sectors which enjoyed preferential tax treatment would be disproportionately affected though it could be argued as creating a level playing field, which is a positive. Question remains whether this would discourage export-oriented industries and trigger a shift.”
Sri Lanka’s tax to GDP ratio was 12.7 percent in 2019 when Wickremesinghe was ousted as the prime minister after his party lost the elections to former president Gotabaya Rajapaksa.The revenue, however, dropped to 8.7 percent of the GDP in last year after Rajapaksa slashed taxes despite warnings of consequences including a possible debt crisis.President Wickremesinghe has said the tax rates should be raised to 2019 level to increase the revenue.
“The 2019 tax system is not going to be the same now. Those higher tax rates were affordable at that time because the cost of living was lower and the inflation was 6-7 percent,” a financial analysts said asking not to be named.
“The new tax rates will force to reduce people’s disposable income and this will be a huge burden on the people who have been paying tax genuinely. Many professionals who want to stay in Sri Lanka and contribute to the economy will leave the country.”
Already Sri Lanka has seen many professionals leaving the country due to the unprecedented economic crisis and a prolonged political crisis with many uneducated lawmakers have been dictating what educated professionals must do with less participatory decision making, analysts say.They also said with prices of fuel, cooking gas, electricity, and water have been raised along with over 50 percent of depreciation in the rupee, many professionals have adjusted their consumption to suit the shrunk disposable income.
“These new tax hikes without considering the current inflation and cost of living will be the final nail in the coffin of the careers of professionals locally. They will look into migrate at any cost,” another analyst said.
News
Lanka enters new phase of prosecutions as hurdles clear
MONETABRIEF –The prosecution of high-profile individuals from the former Rajapaksa administrations is set to escalate this month with the clearing of legal hurdles and administrative bottlenecks, according to officials involved in the process.
Former president Gotabaya Rajapaksa’s attempt to secure an order preventing his arrest in connection with the Easter Sunday massacre was turned down by the Court of Appeal on Thursday.
An overseas travel ban has been in operation against Rajapaksa since June, but the Criminal Investigations Department made no move to question him. He instead filed a writ application seeking an order preventing his possible arrest.
President of the Court of Appeal Rohantha Abeysuriya noted that the court would not interfere with the investigative process. Any attempt by the court would amount to an obstruction of the investigation.
In an unrelated case, the same court rejected an application by opposition legislator Dilith Jayaweera seeking the quashing of a contempt charge filed against him by the Fort magistrate. The charges against Jayaweera and a few other opposition politicians are expected to be taken up in the coming week.
Jayaweera and other opposition politicians — Wimal Weerawansa, Udaya Gammanpila, Sugeeshwara Bandara, and Asanka Navaratne
— were hauled up over their remarks relating to the arrest of Suresh Sallay, the former head of the State Intelligence Service.
SLPP academic Mahinda Pathirana is also charged over his public comments about Sallay’s arrest in February under the draconian Prevention of Terrorism Act.
Former president Mahinda Rajapaksa’s son, legislator Namal Rajapaksa, is already in remand custody following his arrest in connection with three cases of bribery and money laundering relating to the 2013 Airbus deal and the Krrish property development in Colombo.
Although Namal has been granted bail in the Airbus money laundering charge, he is in custody until October 13 over the bribery charge relating to the same Airbus transaction. His arrest is under a provision of the Anti-Corruption Act that does not allow a magistrate to grant bail unless under exceptional circumstances.
Meanwhile, his mother Shiranthi Rajapaksa, who had been asked to report to the Financial Crimes Investigations Division on September 24, was a no-show and was yet to return from Singapore.
She had travelled overseas on September 16, and a family spokesman said she was handed the FCID summons at the departure lounge of Bandaranaike International Airport just before she boarded a flight to Singapore.
At the time, the family spokesman said she was due to return in three days.
“We will see greater momentum in the legacy cases in the coming weeks,” an official involved in the prosecutions said.
“We have cleared the legal hurdles to press ahead with more arrests,” he said.
“We are working on a few administrative issues which will be resolved very soon.”
The controversial prosecution of former President Ranil Wickremesinghe is dragging on without him being formally indicted since his arrest in August last year. The Fort magistrate has listed the case again for November 11, when the Attorney-General is expected to report on his decision regarding action against Wickremesinghe.
News
Police warn: Court evaders face property seizure
Police have reminded the public that courts have the power to take legal action against individuals who evade arrest or remain in hiding after warrants have been issued against them.
Police said that under Section 60 of the Code of Criminal Procedure Act No. 15 of 1979, a court could issue a written proclamation requiring a person evading arrest under a warrant to appear at a specified place and time.
The proclamation must allow the person at least 30 days to appear before court, Police said.
If the person fails to appear even after the proclamation has been issued, the court may take further action under Section 61 of the Act.
This includes issuing an order for the attachment of the movable or immovable property belonging to the person concerned.Police issued the reminder highlighting the legal measures available against persons who deliberately evade arrest and remain in hiding after warrants have been issued.
News
Nearly 20 Iranian tankers stranded off Lanka amid US sanctions
Around 20 Iranian oil tankers are reportedly stranded about 15 nautical miles off Sri Lanka’s southwestern coast, with several vessels facing shortages of food, fuel and fresh water amid tightening US sanctions and maritime restrictions, The Wall Street Journal reported.
According to the report published on Thursday (1), US officials have in recent weeks urged Sri Lanka to prevent local vessels from supplying essential provisions to the tankers and their crews.
The report, citing Sri Lankan Government documents and companies involved in supplying the vessels, said the US had raised concerns over assistance being provided to the sanctioned tankers.
The situation follows the United States’ decision to reimpose a maritime blockade of the Strait of Hormuz in July, which has reportedly left dozens of Iranian and Iran-linked tankers involved in transporting sanctioned oil to China stranded near Asian countries, including Sri Lanka and Malaysia.
Most of the vessels are reportedly empty tankers that had previously transported Iranian crude to Asia, often through ship-to-ship transfers, before preparing to return to Iran for additional cargo.
The WSJ reported that the US Embassy had warned Sri Lanka in August that it was monitoring 19 Iranian tankers off the country’s western coast and had raised the possibility of secondary sanctions against companies providing services to sanctioned vessels.
Sri Lankan authorities have maintained that the vessels are located outside the country’s 12-nautical-mile territorial waters and that the Government is not providing them with logistical assistance.
Meanwhile, shipping companies told the WSJ that obtaining approval to supply essential items, including food, drinking water and fuel, as well as repair services, to the Iranian vessels had become increasingly difficult.
Separately, Reuters reported in late August that 27 sanctioned Iran-linked tankers were waiting off Sri Lanka without cargo.
The Trump administration has also imposed additional sanctions on Iran and warned countries and companies trading with Tehran of potential consequences, as Washington seeks to pressure Iran to make concessions amid the ongoing conflict.
Similar concentrations of Iranian-linked tankers have been reported off Malaysia, where waters have historically been used for ship-to-ship transfers of Iranian crude destined mainly for China.
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