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| Sunday, 15 August 2004 |
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Chamber asks Treasury to delay property tax Bill The Ceylon Chamber of Commerce (CCC) has requested the Secretary to the Treasury Dr P.B. Jayasundera to grant time to the private sector and other stakeholders to make recommendations to the Government on how the proposed draft bill on Property Tax could be amended to overcome the adverse implications. According to the Chairman CCC Deva Rodrigo, the proposed legislation seeks to reintroduce the Transfer Tax of 100% of the value of the land when it is sold to a foreign citizen, and introduce a similar tax on properties purchased by companies, whose foreign shareholding exceeds 25%. The Taxation sub-committee and Economic & Fiscal Policy Planning sub-committee of the CCC examined the implications of the proposed legislation and made representations to the Ministry of Finance early this week. The Chamber is concerned with the proposal to levy a Property Tax on companies whose foreign shareholding exceeds 25% will have at least four adverse implications. These were discussed with Dr. P B Jayasundera, Secretary to the Treasury and Rose Cooray- Director General, Department of Fiscal Policy and Economic Affairs. The concerns expressed and the Ministry of Finance responses are set out below. Sri Lanka will become a less attractive destination for foreign direct nvestment (FDI), because the cost of land will double. Increasing GDP growth from 5 - 8% depends heavily on FDI. This proposal will adversely affect FDI and therefore GDP growth and employment generation. Due to the income disparity of Sri Lankans' and foreigners', the ability of foreigners to purchase land in Sri Lanka is very high. Already some prime properties, especially in the coastal areas and in the Fort of Galle are in foreigners' hands. The Government therefore announced prior to the Elections that its policy would be to re-impose the Property Tax and apply that to foreign companies as well. It could still be possible for foreign owned companies to lease out the land required without having to pay a Property Tax. Long-term leases of 99 years are as good as freehold ownership. It is also possible that the price of prime properties preferred by foreigners will go down after the reintroduction of the tax. For instance, a perch of land in the Fort of Galle increased from Rs. 300,000/- to Rs. one million per perch with the abolition of the Property Tax. If that reverses, in theory at least, the cost of property to a foreigner should decrease. Many local companies including listed public companies such as John Keells, Aitken Spence, Nestles, Richard Peiris and Sri Lanka Telecom will have to pay a Property Tax in the future because they have foreign shareholdings in excess of 25%. Some listed companies such as Sampath Bank will exceed the 25% foreign ownership threshold from time-to-time as foreign persons are free to purchase shares of listed companies by opening a Share Investment External Rupee Account (SIERA). Monitoring of the foreign shareholding for the purpose of Property Tax will be a serious administrative burden and perhaps not practical. |
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