Business

Taxation increase counter-productive to increasing exports, competitiveness – JAAF

Published

4 years ago

2022/10/15

‘Rebuilding Sri Lanka is a national priority and the government of Sri Lanka has aptly stated that the path to rebuilding the nation is in strengthening export-led growth. Sri Lanka’s merchandise exports currently are approximately USD 12 Bn annually, although the country really needs to notch exports closer to USD 20 Bn per annum to take the quantum leap into becoming a developed nation.

‘This will be particularly challenging given the contraction in Sri Lanka’s export markets. While apparel showcased commendable growth in the first eight months of 2022, the industry is now seeing a considerable decline in orders due to a range of global factors, a pattern which may continue indefinitely. Hence, looking at the paradigms unfolding globally, it is imperative that Sri Lanka remains competitive and offers potential and existing investors a competitive investor environment, the Joint Apparel Association Forum (JAAF) said in a press release.

Extracts from the release: ‘JAAF is deeply concerned by recent discussions for the removal of the concessionary rate granted to exporters, replacing this with a single rate of corporate taxation. This would mean the rate of corporate taxation doubling for exporters. The industry has been contributing 52 per cent to export revenue continually throughout the crisis, a contribution that is critical to keep the economy afloat, despite challenging internal and external factors. An additional rate of taxation will make the apparel industry very uncompetitive when compared with regional peers.

‘Until September 2022, apparel exporters were liable to pay a concessionary corporate income tax rate of 15 per cent (which was previously 14 per cent). However, aligned with the IMF staff-level agreement, the government tabled proposals in the 2022 interim budget to increase the standard corporate income tax rate to 30 per cent from 24 per cent, effective from the 1st of October 2022. JAAF is disturbed by this proposed increase as the apparel industry is already confronting a 25 per cent decline in its order books for Q4 of 2022 due to the softening of global markets.

‘The IMF in its Article IV Consultation in March, identified corporate and personal income tax exemptions (CIT and PIT) to have eroded the effectiveness of the 2017 Inland Revenue Act (IRA), paving the way to large revenue losses. This prompted the rationale to the current proposal to increase the corporate income tax rate. As Sri Lanka only collected 7.7 per cent of its GDP in taxes in 20211, the objective of the IMF is to increase revenue collection to finance social services, critical infrastructure and public goods.

‘JAAF fully understands and supports the need for the proposed tax reforms as the government is challenged for options to raise much-needed revenue. However, while the policy is well-intended, the resulting consequences are dire and may have disastrous outcomes for an industry that is striving to increase export income, local value addition, foreign direct investments, sustaining employee security and economic growth.

‘However, it is crucial that the government takes note of the following concerns prior to implementing the increase in corporate taxation for exporters to 30 per cent.

‘Firstly, export industries do not operate in isolation and are in constant fierce competition with regional competitors. This means that investors and buyers are actively conscious of the cost of doing business. Therefore, businesses rationalise the pros and cons and affirm business that would favour their operations. This may lead to shifting to countries offering lower costs of operation. Sri Lanka is already disadvantaged in comparison to regional peers who have better trade agreements and more liberal trade policies. Further tightening bottom lines for exporters to pay a CIT rate higher than that of Bangladesh, Vietnam, Thailand and Indonesia for example will hurt the country’s ability to remain competitive in this region.

‘Further, it is worthy to note that geographically smaller countries like Hong Kong, Singapore and Dubai are modelled on low taxes at early stages of economic growth. Even today, Singapore’s corporate income tax is imposed at a flat rate of 17 per cent with partial tax exemptions and a three-year start-up exemption extended to qualifying start-up companies. It is only larger economies like India with a sizeable domestic market that are able to impose higher tax rates than regional peers.

‘Increased corporate income taxes also carry the potential to discourage the value addition of existing export businesses. For example, businesses will have reduced incentive to further reinvest their reduced profits into research and innovation and other possible avenues for product diversification and product quality improvement. In the medium to long term, this may erode Sri Lanka’s hard-won position as a hub for sophisticated, innovative and ethics-based apparel manufacturing. With this, Sri Lanka also runs the risk of gaining the reputation of a cost centre model that doesn’t necessarily contribute to the profit-making process of a business but still incurs costs for low-value product creation.

‘A growing body of literature has established that higher taxes and higher compliance costs consistently drives more of the economy underground and beyond the reach of the tax collector. The National Bureau for Economic Research confirms this by reporting that as tax rates rise above the median level of 34 per cent, the extent of evasion rises dramatically. This research also found that on average, a 1 per cent increase in the tax rate results in a 3 per cent increase in tax evasion. Tax non-compliance and tax evasion historically have been major sources of revenue loss to the Sri Lankan government. The ‘Parliamentary Committee on Public Accounts (COPA) disclosed that the Inland Revenue Department has been deprived of approximately LKR 144 Bn just last year alone due to tax evasion. In this context, JAAF has severe concerns about the doubling of corporate tax rates at a time of extreme economic distress, which may prompt businesses to evade tax compliance which will deem the very intentions of this policy of increasing government revenue, counterproductive and redundant.

‘The apparel industry is already heading into uncertainty in the next few months due to rising inflation in the biggest export markets, disruptions in global supply chains and geopolitical tensions. Although the industry is confident that this is a temporary predicament and the industry has the capacity to emerge resilient, the timing is not necessarily be prudent and will create a further tough environment for exporters in terms of policy.

‘The apparel industry is determined to direct Sri Lanka into prosperity through the creation of a competitive export-oriented market economy. Therefore, JAAF urges the government to rethink the policy of increasing the corporate income tax rate by 100 per cent (which is from the concessionary 15 per cent to 30 per cent) allowing the apparel industry and all exporters to remain competitive and engage in business and investment in the region.

‘In conclusion, Secretary General of JAAF Yohan Lawrence says, “The apparel industry, which is the largest merchandise exporter reaffirms its commitment to continually support the government in its efforts to reduce the fiscal deficit. JAAF fully supports mechanisms and processes to improve the tax administration and collection and broadening of the tax base which will lead to Sri Lanka to redirect the path of recovery and growth.”

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Business

Prudent policy adjustments could help manage a local growth rate drop – CBSL Governor

Published

18 hours ago

2026/05/27

Sahan Weerasooriya

Dr. Nandalal Weerasinghe: ‘Growth drop manageable’.

‘Sri Lanka recorded a growth of five percent or more but due to the Middle East crisis this growth rate could be expected to drop. However, this decline could be managed effectively through the adoption of prudent policy adjustments, Central Bank Governor Dr. Nandalal Weerasinghe said at the monthly CBSL monetary policy review meeting. The meet was held at the CBSL head office in Colombo yesterday.

The Governor said that the CBSL had decided to increase the Overnight Policy Rate (OPR) by 100 basis points, bringing it to 8.75 percent.

Following this adjustment, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), which are linked to the OPR, have been increased to 8.25 percent and 9.25 percent, respectively. The decision comes after a careful evaluation of evolving domestic and global macroeconomic conditions, Dr Weerasinghe explained.

Dr. Weerasinghe added: ‘The tightening of the monetary policy stance is primarily driven by mounting inflationary pressures. Heightened geopolitical tensions in the Middle East have kept global commodity prices, especially petroleum, elevated.

‘This has led to sharp upward adjustments in domestic energy prices, pushing Sri Lanka’s year-on-year headline inflation to 5.4 percent in April 2026.

‘While the recent spike is largely supply-driven, strengthening domestic demand, evidenced by continued credit expansion, credit-driven imports and robust economic activity—has further accelerated short-term inflation expectations.

‘The external sector has also faced amplified headwinds in recent weeks. A widening merchandise trade deficit, driven by increased fuel import costs and a slowdown in tourism earnings, resulted in a modest external current account surplus for the first quarter of 2026.

‘Additionally, speculative activities led to notable depreciation pressures on the Sri Lankan rupee, though conditions have since stabilized. Despite these pressures and ongoing foreign debt servicing, Sri Lanka’s Gross Official Reserves stood at a resilient USD 6.8 billion by the end of April 2026, a figure that includes a swap facility from the People’s Bank of China.

‘Looking ahead, headline inflation is projected to remain above the Central Bank’s target of 5 percent in the near term before stabilizing.

‘To counter potential second-round effects on inflation from energy price hikes and unchecked private sector credit growth, the Board deemed a restrictive policy stance necessary to maintain long-term domestic price stability. Upcoming multilateral inflows and government stabilization measures are expected to support the external sector and we will continue to monitor incoming data ahead of the next scheduled monetary policy review on July 22, 2026.’

By Hiran H Senewiratne

Business

New Tilapia processing centre opens economic frontiers for Northern women

Published

18 hours ago

2026/05/27

Sahan Weerasooriya

At the opening ceremony of the Tilapia Fish Semi-Processing Centre in Iranamadu, Kilinochchi (L-R) Haridas Fernando, Group Manager – Agribusiness, Cargills Ceylon PLC; Ms. Joni Simpson, Director, ILO Country Office for Sri Lanka and the Maldives; Tormod Nuland, Second Secretary (Political Section), Embassy of Norway to India, Sri Lanka and Bhutan; Thomas Kring, Chief Technical Adviser, ILO Country Office for Sri Lanka and the Maldives; and Ms. Akanksha Khullar, Programme Officer, Embassy of Norway to India, Sri Lanka and Bhutan.

A new tilapia culture-based production and semi-processing centre launched in Iranamadu, Kilinochchi, is expected to boost climate-resilient aquaculture, strengthen rural livelihoods and create sustainable employment opportunities for women in Sri Lanka’s Northern Province.

The facility, launched by the International Labour Organization in partnership with Cargills (Ceylon) PLC and supported by the Government of Norway, is being hailed as a significant milestone in inclusive economic development and inland fisheries advancement.

Located in the Iranamadu freshwater fisheries hub, the centre has been established under the ILO’s Promoting Advancement of Vulnerable Persons and Enterprises (PAVE) Project, aimed at promoting climate-resilient livelihoods among vulnerable communities, particularly women and persons with disabilities.

Speaking at the launch, ILO Country Director for Sri Lanka and the Maldives, Joni Simpson, said the initiative demonstrated the power of partnerships in advancing social justice and decent employment.

“This processing centre represents what can be achieved when communities, government, development partners and the private sector work together. It contributes not only to strengthening aquaculture value chains but also to expanding access to decent and productive employment, especially for women and marginalized groups,” she said.

The centre is expected to generate new jobs in fish handling, processing and quality assurance while providing training in food safety standards, value addition and enterprise development. Officials said this would significantly increase women’s participation in the aquaculture value chain in the Northern Province.

Representing the Norwegian Government, Tormod Nuland said Norway’s continued support for livelihood projects in the North reflected its commitment to gender equality, inclusivity and climate resilience.

“Illustrating the success of long-standing cooperation with the ILO, the new tilapia processing unit is a key initiative that will help strengthen socio-economic conditions for communities in the Northern Province,” he said.

Cargills officials noted that the project marked the company’s first major venture into inland fisheries development after years of engagement with agricultural and dairy farming communities in the North.

Group Manager Agribusiness at Cargills, Haridas Fernando, said the company saw immense potential in developing the tilapia industry as an affordable and nutritious protein source for Sri Lankan consumers.

“We are pleased to partner with the ILO on this important initiative to support the inland fisheries sector while strengthening livelihoods for small-scale fishing communities,” he said.

The initiative also strengthens market access for the Iranamadu Freshwater Fishermen’s Cooperative Society by linking smallholder fisher communities with private sector markets and national retail networks.

Officials said the project would continue under the ILO’s Generating Resilient Opportunities for Work (GROW) programme, funded by the Governments of Australia and Norway, with the aim of expanding climate-resilient and market-oriented livelihood systems across the Northern Province.

The GROW project builds on more than a decade of interventions under the ILO’s Jobs for Peace and Resilience Programme and focuses on sustainable employment creation, private sector partnerships and social empowerment for vulnerable communities.

By Ifham Nizam

Business

Bourse indices dip as West Asian tensions continue to simmer

Published

18 hours ago

2026/05/27

Sahan Weerasooriya

As West Asian tensions continued to simmer, the All Share Price Index moved down by 189.63 points, while the more liquid S&P SL20 went down by 36.97 points.

Turnover stood at Rs 4.93 billion with four crossings. Those crossings were: Softlogic Life Insurance 33.8 million shares crossed to the tune of Rs 3 billion at a per share value of Rs 92, HNB 316,889 shares crossed for Rs 125.2 million; its shares traded at Rs 395, HNB (Non-Voting) 318,199 shares crossed to the tune of Rs 105 million; its shares sold at Rs 330 and Lanka IOC 200,000 shares crossed for Rs 27.7 million; its shares traded at Rs 138.50.

In the retail market companies that mainly contributed to the turnover were; LOLC Holdings Rs 116.5 million (207 900 shares traded), Softlogic Life Insurance Rs 112.3 million (1.2 million shares traded), Commercial Bank 78.2 million (380,000 shares traded), Overseas Reality Rs 64 million (1.3 million shares traded), Sampath Bank Rs 48.9 million (340,000 shares traded), CIC Holdings (Non-Voting) Rs 46.5 million (1.7 million shares traded) and JKH Rs 46 million (2.3 million shares traded). During the day 94.3 million share volumes changed hands in 22097 transactions.

It is said that 75 percent of the turnover came from Softlogic Life Insurance which amounted to more than Rs 3 billion. Therefore, the Insurance sector led the market while the banking sector, especially Commercial Bank and HNB, performed well.

Main contributors to the ASPI were DFCC Bank (up 0.75 percent at Rs 135.00 ), Lanka Ashok Leyland (up 7.38 percent at Rs 3,050.00 ), and Tokyo Cement Company (Lanka) (up 2.00 percent at Rs 92.00 ).

Hayleys (down 1.78 percent at 234.00 rupees), Melstacorp (down 0.53 percent at Rs 186.25 ), Sunshine Holdings (down 3.49 percent at Rs 30.40), LB Finance (down 3.44 percent at Rs 161.25 ), and Dialog Axiata (down 1.25 percent at Rs 39.40 ) were top negative contributors.

Lanka Ashok Leyland announced a first and final proposed dividend of Rs 30 per share for the financial year ended March 31, 2026.

The Lighthouse Hotel has also declared a final dividend of Rs 3 per share for the financial year ended March 31, 2026, subject to shareholder approval at its Annual General Meeting on June 30, 2026.

Yesterday the rupee was quoted at Rs322.00/323.50 to the US dollar in the spot market , stronger from Rs 325.50/327.00 the previous day, dealers said, while bond yields were quoted higher following the rate hike.

The telegraphic transfer rate for Sri Lanka’s rupee against the US dollar was 321.50 buying, 330.50 selling.

By Hiran H Senewiratne