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Monday June 3rd, 2024

Sri Lanka businesses see tax hike pressure, lower sales – analysts 

ECONOMYNEXT – Sri Lanka’s businesses have started to feel tax hike pressure from this month and they see a decline in the sales volume as President Ranil Wickremesinghe’s new revenue boosting measures have dampened domestic consumption, analysts say.

The upward tax revision comes as the government is in discussion with the International Monetary Fund (IMF) for a $2.9 billion loan which Wickremesinghe banks to move out of the current unprecedented economic crisis.

Wickremesinghe, in his capacity as the finance minister, has raised corporate taxes to 30 percent from 24 from this year, after almost doubling the value added tax (VAT) last year.  The higher taxes comes as the inflation is hovering around 57 percent while borrowing cost is running around 30 percent.

“Lot of companies fall under the tax pressure and then basically their goods have to be sold at a higher price to consumers,” Dimantha Mathew, Head of Research at First Capital Holdings, told Economy next.

“When the corporate tax is increased, then again the return for the shareholder significantly comes down. So ultimately the business owner has a significant decline in profitability.”

The latest tax increase was considered after the island nation’s tax revenue to GDP ratio slumped to less than 8 percent last year, one of the lowest in the world.

The central bank under former president Gotabaya Rajapaksa was compelled to print billions of rupees to finance the government at an artificially low interest rate fixed by the central bank, which also fixed the rupee exchange rate.

Sovereign debt default

Wrong economic policies by Rajapaksa and borrowing without returns for white elephant infrastructure projects mainly under his brother Mahinda Rajapaksa-led era resulted in the country to a sovereign debt default in April last year.

Since then millions of Sri Lankans have been forced to cut their daily meals to survive amid job losses and declining disposable income.

Wickremesinghe has estimated to raise the overall tax revenue by 69 percent this year compared to the last year.

The new tax policies have removed many exemptions maintained earlier as well as imposed taxes on goods and services exporters as well.

“Basically there is a significant increase in terms of corporate taxes,” Mathew said.

“There could be a shift from Sri Lanka to other destinations, then there could be a shift from import industries and export industries in order to take advantage of the currency and exposure.”

Already some of the exporters are in the process of shifting their manufacturing plants to other countries while some have already opened subsidiaries in countries like Singapore, Hong Kong and United Arab Emirates to pay less taxes.

“With regards to operational cost also there will be an increase because the suppliers will try to cover the increase of the tax cost,” Danushka Samarasinghe,  Chief Executive Officer/Director at Nation Lanka Equities (Pvt) Ltd, told Economy Next.

“All the sectors have been affected because of the tax increases but the sectors which have lost the most which have earlier enjoyed the tax rate. The IT sector, import sector and tourism sector all that. I don’t think there are any winners from the tax increase.”

“The exporters will be reluctant or discouraged to do operations here. So, they might try to do operations in other countries. People might be encouraged to move their business operations.” (Colombo/Jan09/2023)

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Water levels rising in Sri Lanka Kalu, Nilwala river basins: Irrigation Department

Sri Lanka Navy assisting in rescue operations (Pic courtesy SL Navy)

ECONOMYNEXT – Sri Lanka’s Irrigation Department has issued warnings that water levels in the Kalu and Nilwala river basins are rising and major flooding is possible due to the continuous rain. People living in close proximity are advised to take precautions.

“There is a high possibility of slowly increasing prevailing flood lowline areas of Kiriella, Millaniya, Ingiriya, Horana, Dodangoda, Bulathsinhala, Palinda Nuwara and Madurawala D/S divisions of Ratnapura and Kalutara Districts, up to next 48 hours,” it said issuing a warning.

“In addition, flood situation prevailing at upstream lowline areas of Ratnapura district will further be prevailing with a slight decrease.

“The residents and vehicle drivers running through those area are requested to pay high attention in this regard.

“Disaster Management Authorities are requested to take adequate precautions in this regard.”

The island is in the midst of south western monsoon.

DMC reported that 11,864 people belonging to 3,727 families have been affected due to the weather in Rathnapura, Kegalle, Kilinochchi, Jaffna, Mullaitivu, Kalutara, Gampaha, Colombo, Galle, Matara, Hambantota, Puttalam, Kurunegala, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Badulla, Moneragala, and Trincomalee districts.

Meanwhile, the Meteorology Department stated that showers are expected on most parts of the island today.(Colombo/June3/2024)

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UNP gen secy defends call for postponing Sri Lanka poll, claims opposition silent

The UNP party headquarters in Pitakotte/EconomyNext

ECONOMYNEXT — United National Party (UNP) General Secretary Palitha Range Bandara has defended his call for postponing Sri Lanka’s presidential election by two years, claiming that his proposal was not undemocratic nor unconstitutional.

Speaking to reporters at the UNP headquarters Monday June 03 morning, Bandara also claimed that neither opposition leader Sajith Premadasa nor National People’s Power (NPP) leader Anura Kumara Dissanayake have spoken against his proposal.

“I have made no statement that’s undemocratic. My statement was in line with provisions of the constitution,” the former UNP parliamentarian said.

He quoted Section 86 of Chapter XIII of the constitution which says: “The President may, subject to the provisions of Article 85, submit to the People by Referendum any matter which in the opinion of the President is of national importance.”

Sections 87.1, 87.2 also elaborates on the matter and describes the parliament’s role, said Bandara.

“I spoke of a referendum and parliament’s duty. Neither of this is antidemocratic or unconstitutional. As per the constitution, priority should be given to ensuring people’s right to life,” he said.

“Some parties may be against what I proposed. They may criticse me. But what I ask them is to come to one position as political parties and make a statement on whether they’re ready to continue the ongoing economic programme,” he added.

Bandara claimed that, though thee has been much criticism of his proposal for a postponement of the presidential election, President Wickremesinghe’s rivals Premadasa and Dissanayake have yet to remark on the matter.

“I suggested that [Premadasa] make this proposal in parliament and for [Dissanayake] to second it. But I don’t see that either Premadasa nor Dissanayake is opposed to it. To date, I have not seen nor heard either of them utter a word against this. I believe they have no objection to my proposal which was made for the betterment of the country,” he said. (Colombo/Jun03/2024)

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300 of 100,000 trees in Colombo considered high risk: state minister

ECONOMYNEXT – Trees in Sri Lanka’s capital Colombo are being monitored by the municipal council, Army and Civil Defense Force as the severe weather conditions continue, State Minister for Defense Premitha Bandara Tennakoon said.

“Within the Colombo Municipal Council city limits, there are 100,000 trees. Of these, around 300 are considered high risk,” Tennakoon told reporters at a media conference to raise awareness about the current disaster management situation.

Not all trees required to be cut down he said. “We can trim some of the branches and retain them.”

The problem was that buildings in the vicinity of the tree had cut branches on one side, causing it to become unbalanced, the minister said.

New laws would be brought in so provincial/municipal institutions could strengthen enforcement of building codes.

“We don’t have a single institution that can issue a warning about a tree. Not one to tell us what trees can or cannot be planted near a road.

“Trees should be suitable for the area. Some trees have roots that spread and damage roads, buildings. When the roots can’t go deep, they tend to topple over.

“Now Environment Day is coming up, and anyone can go plant a tree by the road. We have to take a decision about this. We have to enforce laws strongly in future.” (Colombo/June3/2024)

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