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Lanka’s tax hike could force professionals to migrate – analysts 

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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.



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President Ranil Wickremasinghe calls upon chief prelates of Asgiriya and Malwatta chapters

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(pic courtsey Divaina)

President Ranil Wickremasinghe called upon the chief prelates of the Asgiriya and Malwatta chapters on Thursday (02) morning to seek their blessings ahead of the 75th Independence day celebrations.

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US secures deal on bases to complete arc around China

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US Defense Secretary Lloyd Austin (R) was in the Philippines to finalise the deal (picture BBC)

BBC reported that the United States has secured access to four additional military bases in the Philippines – a key bit of real estate which would offer a front seat to monitor the Chinese in the South China Sea and around Taiwan.

With this deal, Washington has stitched the gap in the arc of US alliances stretching from South Korea and Japan in the north to Australia in the south.

The missing link had been the Philippines, which borders two of the biggest potential flashpoints, Taiwan and the South China Sea, or the West Philippine Sea as Manila insists on calling it.

The US already had limited access to five sites under the Enhanced Defense Cooperation Agreement (EDCA) – the new additions and expanded access, according to a statement from Washington, will “allow more rapid support for humanitarian and climate-related disasters in the Philippines, and respond to other shared challenges”, likely a veiled reference to countering China in the region.

The statement came after Defence Secretary Lloyd Austin met Philippine President Ferdinand “Bongbong” Marcos Jr in Manila on Thursday.

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Nuland accuses China of failing to help SL with ‘credible and specific assurances’ acceptable to IMF

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Nuland addressing the media in Colombo (pic by Thushara Atapattu)

US hopes LG polls will be held in March

By Saman Indrajith

US Under Secretary of State for Political Affairs, Victoria Nuland, yesterday said China had not provided credible and specific assurances to the International Monetary Fund (IMF) for Sri Lanka to overcome the current economic crisis.

Addressing the media in Colombo, Nuland said: “What China has offered so far is not enough. We need to see credible and specific assurances that they will meet the IMF standard of debt relief. We, the United States, are prepared to do our part. Our Paris Club partners are prepared to do their part. India has made strong commitments that it will provide the credible assurances the IMF is looking for.”

Nuland said that India and the Paris Club had given strong assurances to the IMF to help Sri Lanka to obtain a $2.9 billion bailout.

“We want to see an IMF program as quickly as possible. That is what Sri Lanka deserves; that is what Sri Lanka needs,” Nuland said.

Nuland said the US would give Sri Lanka an additional USD 30 million to provide 96,000 schoolchildren with food.

She said Sri Lankans had taken to the streets, last year, demanding cleaner, accountable and inclusive governance, with transparency, and the government was expected to hold the elections to enable people to enjoy their democratic rights.

Nuland said that the US was glad to see that consultation between the government and other parties towards reconciliation had commenced. She said that she had met with members of the Tamil political parties, earlier yesterday. “We hope that the dialogue will continue to achieve real results such as return of the lands to their rightful owners.”

Nuland said that the US hoped that local elections would be held in March, the dialogue commenced for reconciliation would continue, and the Prevention of Terrorism Act would be reformed to meet international standards.

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