Business
Taxation increase counter-productive to increasing exports, competitiveness – JAAF
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‘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.”
Business
UK and India relaunch trade talks in Delhi
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India and the UK have restarted free trade talks, nearly a year after negotiations were paused ahead of general elections in both countries.
Jonathan Reynolds, the UK’s business and trade secretary, met his Indian counterpart Piyush Goyal in Delhi on Monday and kicked off the two-day discussions.
The talks focused on “advancing” the negotiations and ensuring that the deal was “balanced, ambitious and mutually beneficial”, Goyal wrote on X.
The countries have held more than a dozen rounds of negotiations since 2022, but an agreement has remained out of reach.
Sticking points include high tariffs in India on Scotch whisky and relaxing fees and visa rules for Indian students and professionals going to the UK.
Talks are being held for the first time after the Labour Party came to power in the UK and Reynolds says securing a deal is a “top priority” for his government.
“Growth will be the guiding principle in our trade negotiations with India and I’m excited about the opportunities on offer in this vibrant market,” he said in a statement ahead of the meeting.
India is forecast to become the world’s third-largest economy in a few years.
The ministers held a joint press conference after the meeting, but neither side offered a deadline for talks to conclude. Deadlines set by former ministers Boris Johnson and Liz Truss had passed without an agreement being finalised.
For Delhi, the trade talks have assumed renewed significance on the back of US President Donald Trump’s decision to impose reciprocal or tit-for-tat tariffs on imported goods from countries, including India.
The UK is also a high-priority trading partner for Prime Minister Narendra Modi’s government, which has an ambitious target to grow exports by $1 trillion by FY30.

The UK had announced in November last year – soon after Sir Keir Starmer met PM Modi at the G20 summit in Brazil – that talks would restart in the new year.
The two countries share a trade relationship worth £41bn ($52bn) currently, according to a UK government statement, and a trade deal could unlock new opportunities for both countries.
London has identified sectors that could benefit, which include advanced manufacturing, clean energy and professional and trade services. An agreement could also potentially unlock a valuable market for British cars, Scotch whisky and financial services worth billions of dollars.
India is seeking greater mobility for its working professionals and students to the UK, while pushing for faster visa processing times.
It may also seek concessions for its residents working temporarily in the UK on business visas, who are required to pay national insurance but are still ineligible for social benefits.
Speaking at the joint conference, Goyal said that immigration was not a part of the discussions.
“India has never ever discussed immigration in any free trade negotiations,” he said. Reynolds added that business mobility was a “separate issue” from immigration.
During Reynolds’ visit, he and Goyal will also visit the BT office in the northern Indian city of Gurugram.
UK Investment Minister Poppy Gustafsson is also in India and will be participating in events in India’s two big business hubs – Mumbai and Bengaluru.
After years of scepticism over free trade deals, India has been signing agreements or is in talks with several countries or blocs. Last year, it signed a $100bn free trade agreement with the European Free Trade Association – a group of four European countries that are not members of the European Union – after almost 16 years of negotiations.
It is also set to resume negotiations with the European Union this year.
[BBC]
Business
Our future is tied together even more than our past was, says Indian HC
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India – Sri Lanka bilateral relations
By Sanath Nanayakkare
Sri Lanka cannot afford to stay in isolation and the two countries’ future is tied together even more than in the past, was the highlight of the keynote speech delivered by Santosh Jha, the High Commissioner of India to Sri Lanka, at the Innovation Island Summit held at ITC Ratnadipa on 20 February 2025.
“Like any other country, Sri Lanka cannot afford to remain in isolation, and the futures of the two nations are more interconnected than ever before, the Indian HC pointed out, addressing the key event attended by 200 participants from over 45 countries.
The following are some excerpts from his speech.
“Sri Lanka is on the cusp, potentially, of a big change. People’s aspirations and expectations have found a new expression in the two elections held in Sri Lanka. The Covid pandemic and the economic crisis in Sri Lanka has underlined the need for a transformation that many Lankans have yearned for generations to happen.”
“Sri Lanka as an Island country is particularly vulnerable to climate change. It is also blessed with rich potential for green energy, including for energy exports to the larger Asian region. And Chrome because digitization has become the new currency for low middle income countries to transcend their entrenched inefficiencies; and to outgrow them to position themselves to take full advantage of the many opportunities in an emerging geo-technological age.”
“Third, and this is my last point. Like any other country, Sri Lanka cannot afford to stay in isolation. Global connectivity and interdependence remain a norm even in this new era of re-globalization. Whether it is markets abroad, or critical imports or tourism, investment and technology, Sri Lanka needs to remain engaged with the rest of the world. This requires a better understanding of global trends and opportunities. I am sure that this conference would help build a better appreciation of the need for global engagement as a means to fulfilling the aspirations of Sri Lankans for change, growth, and prosperity.”
“As far as we in India are concerned, we are engaged with Sri Lanka on the basis of our Neighborhood First and SAGAR approach. Our relations are based on the principles of solidarity; of sharing whatever best we can offer to each other; and being a partner of first as well as last resort. Today, our relations are better than ever before and spread across a wide range of domains. Prime Minister of India Shri Narendra Modi has described connectivity, energy and digitization as the three principal pillars of our development partnership. We are also engaged in other areas such as health, education, ports and airports, agriculture, fisheries in addition to security and defence. As civilizational twins, our partnership is a necessity and not a matter of choice. Our future is tied together even more than our past was.”
Business
HNB Assurance Group achieves 21% GWP growth in 2024
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The HNB Assurance Group, comprising HNB Assurance PLC (HNBA) and HNB General Insurance (HNBGI), reported a strong financial performance for 2024, with a 21% increase in Gross Written Premium (GWP), rising from Rs. 18.8 billion to Rs. 22.7 billion. The Group also achieved a consolidated Profit After Tax (PAT) of over Rs. 1.8 billion, marking a 7% growth compared to the previous year.
HNBA, the only life insurance provider in Sri Lanka with an ‘A’ rating from Fitch Ratings Lanka, and HNBGI, which also secured an ‘A’ rating, demonstrated robust financial health. The Group’s Funds Under Management grew by 24% to Rs. 55 billion, reflecting the strength of its investment strategy. Additionally, the Group honored claims exceeding Rs. 6.7 billion, with a 98% complaint resolution rate, underscoring its commitment to customer trust.
Chairman Stuart Chapman highlighted the Group’s consistent growth, with a 22% average annual increase in GWP over the past four years. He also noted the Group’s strong capital adequacy ratios, with HNBA at 379% and HNBGI at 219%, well above the regulatory requirement of 120%. The Group’s share price grew by 42% in 2024, reflecting market confidence.
HNBA CEO Lasitha Wimalaratne emphasized the company’s 7.5% market share and its target to reach 10% by 2026. HNBA’s New Business Premiums grew by 27%, and its GWP increased by 26%. Despite higher operating costs from IT upgrades, the company achieved a 3% profit growth, with total assets reaching Rs. 53 billion.
HNBGI CEO Sithumina Jayasundara highlighted the company’s resilience, with a 14% GWP growth, double the industry average. Non-motor segments surged by 24%, with Marine, Fire, and Engineering Insurance achieving exceptional growth. Despite challenges in the motor insurance sector, HNBGI secured a 6% growth. The company also achieved a 59% growth in PAT and a market share of 7%, with total assets reaching Rs. 10.2 billion.
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