News
Personal income tax shock dims economic activities

ECONOMYNEXT –Sri Lanka’s personal income tax hikes have hit economic activity in the first quarter though despite currency stability helped businesses cut prices, Hemas Holdings, a top consumer goods group has said.As the currency stabilized, as central bank ended contradictory money and exchange policy conflicts, businesses had cut prices. Mainstream economists generally claim that price falls lead to delayed transactions and try to generate positive inflation through money printing, though businesses believe otherwise.
“The market witnessed price reductions and promotional trade schemes to stimulate consumption,” Hemas Holding told shareholders in the March quarterly statement.
“However, changes made to the personal income tax structure severely impacted modern trade sales volumes as consumers rationalised their purchases under reduced disposable income levels.”
Sri Lanka hiked personal income tax rates in 2023. Value added taxes were raised to 15 percent from 8 percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.
While value added tax allows the government to get tax revenues after citizens make transactions and getting the economy to work, based on best decisions needed to drive the economy to satisfy real needs, income tax kills economic decisions and transfers money to state actors, analysts say.
Net gains on income tax therefore comes at a cost of lost value added tax as well as killed real economic activities which would otherwise have been based on decisions of those who earned the money.
UK also almost doubled VAT in 1979, also to 15 percent, cut the base income tax rate and widened thresholds above inflation to give choice to individuals, amid criticism from Keynesian style or mainstream economists to recover the economy, after two back-to-back IMF programs failed to deliver concrete results, analysts point out.At Hemas Holdings, group revenues went up 52.6 percent to 32 billion rupees in the March 2023 quarter from year earlier amid price inflation as the rupee fell, and cost of sales went up 45.1 percent to 22.2 billion rupees, allowing the group to boost gross profits 72 percent to 9.8 billion rupees, interim accounts showed.
However, administration costs went up 54 percent, selling and distribution costs went up 36 percent, and finance costs went up to 1.3 billion rupees. Profit after tax was flat at 1.06 billion rupees.Sri Lanka’s central bank stabilized the rupee in the second half of 2022 after the rupee collapsed from 200 to 360 to from two years of money printing and also removed a surrender rule in March allowing the exchange rate appreciate.
The US Fed also tightened policy from March 2022 helping bring down global commodity prices after triggering inflation not seen for 40 years through Coronavirus linked money printing or accommodating a real shock through monetary expansion.
“While the modern trade channels witnessed a slow down due to the adverse impact of the tax reforms and high cost of credit on the middle-class urban population, the general trade channels experienced significant growth and increased foot fall,” Hemas told shareholders.
“The decline in global commodity prices in the second half of the year, enabled the business to make price reductions across the portfolio.
“However, the benefit of appreciation of the Sri Lankan Rupee in March 2023 was not seen during the quarter due to the lag effect but is expected to realise in the quarters to come, provided the current economic conditions prevail.”
Hemas is also has operations in Bangladesh where the central bank is also buying up government securities with tenors as long at 20 years to mis-target the interest rate, triggering forex shortages and depreciating the Taka, according to analysts who study the country.
Inflation had hit 9.3 percent in Bangladesh by March.
“In the face of numerous challenges including slowdown in the global economy, depreciation in Taka, heightened inflation and depleting foreign currency reserves, the country entered an IMF programme in January 2023,” the firm said.
“The value-added hair oil market witnessed a degrowth, as consumers curbed consumption in many non-essential items and switched to value-for-money alternatives.”
Mainstream economists mis-target rates to boost growth known as either monetary stimulus or bridging an output gap, though the effort result in instability and economic contractions.
News
Voter apathy grows as never before: PAFFREL

Public’s interest in the upcoming Provincial Council elections remains low, according to the People’s Action for Free and Fair Elections (PAFFREL).
PAFFREL Executive Director Rohana Hettiarachchi told The Island that there was an urgent need to encourage voter participation, noting that a higher voter turnout is essential for a functioning democracy.
Hettiarachchi said that the current level of political campaigning has been relatively subdued, with fewer aggressive or violent activities than seen in previous elections—a trend he described as a positive development.
He, however, stressed that local councils play a vital role in the lives of citizens, from birth- to death-related services, and also contribute to the legislative process. As such, voters must understand their importance and engage in the electoral process.
Despite the peaceful nature of the campaign so far, PAFFREL has received 20 complaints regarding the misuse of state resources and 15 complaints related to physical assaults. Hettiarachchi, however, added that no major incidents have been reported to date.
By Chaminda Silva
News
Many foreign diplomats witness sacred relic exposition on first day

A group of 44 diplomats, including those from Vietnam, Bangladesh, Indonesia, Nepal, the Netherlands, India, Myanmar, Palestine, France, New Zealand, Cuba, Egypt, Japan, the United Kingdom, Thailand, Canada and South Korea, headed to Kandy, by train, yesterday morning, to witness the sacred relic exposition.
The group travelled to Kandy in a special observation saloon of a train that departed from the Colombo Fort Railway Station around 7:00 am.
The ‘Sri Dalada Vandanawa’, a special exposition of the Sacred Tooth Relic, commenced yesterday (18), and will continue till 27 April.
President Anura Kumara Disanayake, along with the ambassadors, high commissioners and other diplomats, participated in the inaugural event.
“This initiative aims to convey a message to Sri Lanka’s friendly nations that the country is recovering economically, overcoming previous challenges, and fostering national harmony. The event also seeks to strengthen international support for Sri Lanka,” the PMD said.
Yesterday (18), on the opening day, the public had the opportunity to pay homage to the Sacred Tooth Relic from 3:00 pm to 5:00 pm From today (19) onwards, it will open for public veneration, daily from 12:00 noon to 5:00 pm.
News
Ahungalla shooting ordered from Dubai for failure to carry out contract killing

Police investigations have revealed that the shooting of a 27-year-old man in Ahungalla on Thursday night was a revenge attack. The motive is said to be his failure to carry out a contract killing assigned by a prominent underworld gang leader currently hiding in Dubai.
The 27-year-old victim, who was seriously injured in the attack, is currently receiving treatment at the Balapitiya Hospital. Investigations have further revealed that the attack was ordered by an underworld figure, known as “Abrew,” who is reportedly hiding in Dubai.
It has come to light that Abrew had given the young man a contract to kill a rival. However, since the contract was not carried out, the attack is believed to have been an act of retaliation.On the night of 17 April, around 9:48 pm, the young man received a phone call from an individual who instructed him to come and collect a packet of ice (a term commonly used to refer to crystal meth).
Accordingly, the 27-year-old arrived near the Revatha Primary School, in Balapitiya, Ahungalla in a three-wheeler. At that location, a hired gunman, who had arrived in another three-wheeler, fired three shots at him and fled the scene.
Despite being injured by one of the bullets hitting him, the young man managed to reach the Ahungalla Police Station in the same three-wheeler he had come in. Police officers then arranged for him to be admitted to Balapitiya Hospital for treatment.
By Hemantha Randunu
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