Sri Lanka’s cash-strapped government has announced a taxation overhaul to boost revenue amid the country’s crippling economic crisis, hiking value added taxes and corporate income tax, and slashing the relief given to individual taxpayers.
Cash starved government now strives to introduce more direct taxes on par with international practices with the aim of increasing tax revenue at least by 15 percent , Minister of State for Finance Ranjith Siyambalapitiya disclosed.
He added that the percentage of direct tax should be increased by 15 percent to 35 percent from the percent rate of 20 percent in the short term.
The Finance Ministry is working on this subject at present to introduce some direct taxes soon before or at the presentation of the upcoming 2023 budget, he revealed.
Minister Siymabalapitiya was of the view that at present rich or poor is paying the same amount of tax for goods and services and this should be changed even to some extent.
The short term solution would be the introduction of more direct taxes catching the rich into the tax net, he pointed out.
Finance Ministry’s budget department is exploring the possibility of introducing Wealth tax which was in the pipeline for several years, new super gain tax, new capital gain tax, modified surcharge tax and several other novel direct taxes.
Considering complaints and appeals of Small and Medium scale Enterprises and entrepreneurs, the State Minister for Finance Ranjith Siyambalapitiya has appealed to heads of state banks to provide some relief when recovering their loans or granting new loans under the present high interest rate regime while protecting the banks liquidity positions.
He made this request at a recent meeting of heads of state banks, senior treasury and other officials.
In an initial step towards the increasing of direct taxation , Sri Lanka’s budget for 2022 has proposed new taxes after a value added tax cut in 2019 for ‘fiscal stimulus’ devastated state revenues, triggering money printing which has resulted in a balance of payments crisis.
An increase in the standard corporate income tax rate to 30% (from 24%) has come into effect from 1 October 2022 and a hike in the concessionary income tax rate to 15% (from 14%)—effective has also imposed from that date.
Action has been taken to do away with of various tax holidays granted under the Inland Revenue (Amendment) Act No.10 of 2021 aqnd remove additional 100% deduction applicable for 2022/23 tax year granted for marketing and communication expenses effective 1 April 2023
Imposition of income tax on dividend payment by a resident company to a non-resident person was among the new proposals effective 1 April 2023.
