Staggering external debt:
Lanka’s economy may dip similar to Greece - Economists
Tax experts and economic analysts cautioned that the country’s
economy may take a dip similar to Greece which needed bail outs to avoid
defaults on foreign borrowings. Sri Lanka’s foreign borrowing on high
interest rates by the former regime have gone into colossal amounts
which would be passed on to the people who will have to pay through
their nose by way of taxes.
Sri
Lanka recorded a Government Debt to GDP of 75.50 percent of the
country’s Gross Domestic Product (GDP) in 2014. Government Debt to GDP
in Sri Lanka averaged 90.83 percent from 1990 until 2014, reaching an
all-time high of 103.20 percent in 2001 and a record low of 75.50
percent in 2014.
External Debt in Sri Lanka increased to Rs. 3,181,800 million in June
from Rs. 3,069,400 million in March of 2015. External Debt in Sri Lanka
averaged Rs. 814,798.55 million from 1986 until 2015, reaching an all
-time high of Rs. 3,272,700 million in June, 2014.
Commenting on the 2016 Budget, a tax expert said bridging the budget
deficit which is Rs. 740 billion for 2016 will be an uphill task given
the staggering loan repayment and the projected global economic slowdown
next year.
The deficit for 2016 is up from Rs. 675 billion in 2015. However,
certain tax experts commended the move in the Budget to widen the tax
net and improve administration.
They said the proposal, which will net in around 60 percent of the
affluent class who evade paying taxes, is a praiseworthy move but how
the government proposes to achieve this feat is left to be seen.
Tax consultant and Partner Gajma and Co., N.R. Gajendran said the
government has focused on wooing more FDIs to the country by slashing
corporate tax, revising the land lease tax and doing away with the
dividend tax for shareholders outside Sri Lanka.
“Policy makers should focus on stimulating more FDIs, promoting
exports, research and development, encouraging innovation and investment
in human resources development, if it is to get to the next level of
development,” Gajendran said.
With regard to income tax being increased from 12 percent to 15
percent for value-added exports, he said we need to see the total
picture. Today, the cess on exports has been removed and the devalued
rupee is a big advantage for exporters. No country has an income tax
structure as low as Sri Lanka. An increase from 12 percent to 15 percent
will not have a major impact on exports, he said.
Tax experts said the land alienation policy adopted in the past sent
a negative signal to foreign investors who were uncomfortable investing
in Sri Lanka. Foreigners could not buy land. There was an upfront cost
of 15 percent which meant the cost of commencement of business shot up.
The move to revise land lease tax in the Budget will show the country’s
appetite for foreign investors and the space for development.
The reduction in VAT (Value Added Tax) by around 3-4 percent will
offset the increase of PAL (Ports and Airport Levy) and NBT (Nation
Building Tax) which have been increased from 5.0 to 7.5 percent and from
2 to 4 percent, experts said.
However, industrialists said the revision of PAL and NBT will have an
adverse impact on capital investment programs.
It has also been proposed to introduce the Revenue Administration
Management Information System (RAMIS) in 24 institutions.
Gajendran said the measures taken to simplify the tax system and
improve tax administration is good. However, the government will have to
walk the talk and the private sector will have to keep pace with the
rapid changes taking place across the globe.
Director, Taxation Service, Pricewaterhouse Coopers, Sri Lanka,
Charmaine Tillekeratne said Sri Lanka has become a low tax regime
country with the reduction of income tax to 15 percent from 24 percent
as proposed in the 2016 Budget.
She said tax concessions have been granted to the agriculture,
construction and condominium sector to drive growth. The cost of
acquisition of machinery for the agriculture and construction sector
will get double deduction.
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