At least five profitable state institutions and two superannuation funds will have to forgo around Rs.135 billion for 25 percent super charge tax which will come into effect in April this year.
Sri Lanka’s public and private income generating institutions including groups of companies,, partnerships, banks and individuals earning over Rs2.0 billion will get a bashing from the 25 percent one off surcharge tax inflicting cascading effect on economy, annual financial statements analysis revealed. .
The one-off super gain style tax is aimed at collecting Rs 100 billion for government’s rural development initiative hitting profit making public and private sector institutions alike, they explained.
According official provisional estimates, three state owned banks and several profit making state institutions and around 62 big companies and several banks in the private sector are to be badly hit by this tax.
It will apply retrospectively from the year of assessment starting from April 2020. The tax has to be paid in two tranches in March and June 2022.
A sum of Rs. 5.75 billion is to be taxed from the Bank of Ceylon, Rs.5.25 billion from the Peoples Bank and Rs.3.9 billion from the National Savings Bank, finance ministry assessment report on state banks disclosed.
The total tax rate on Sri Lanka banks is expected to be around 70 percent for the past financial year as a result of this surcharge tax and ‘financial VAT’ increase, a tax expert said.
A financial VAT was also increased by 3 percent to 18 percent, reversing a 2019 sudden removal of the Nation Building Tax.“Most banks earn over Rs 2 billion, he said adding that this will be unbearable of all these banks.
Sri Lanka Insurance Corporation will have to pay Rs.5.5 billion and a sum of Rs.4.5 billion from the Sri Lanka Ports Authority.
The government is to raise Rs 110 billion from two private sector superannuation funds EPF and ETF amidst mounting pressure from employees and trade unions.
Although Finance Minister Basil Rajapksa has stated that the 25 percent surcharge will not be levied from these two funds but he has to follow tough official procedure including passing amendments to relevant acts in parliament exempt that tax from these funds , economic experts said.
These state institutions will have to face severe cash crunch making it difficult to pay bonuses and overtime payments for employees before the April Sinhala and Hindu New year, trade union leaders complained.
The private sector big companies considered as engines of growth will have to borrow money from banks to pay the surcharge tax, a senior tax consultant said.
While there was a call for raising taxes, including from the formal private sector to overcome the government’s-fiscal difficulties which spilled into the external sector and several others, the surcharge tax will push the private sector into the abyss as they are already high tax payers.