By: Staff Writer

January 01, Colombo (LNW): Sri Lanka will reduce the threshold to change a cascading Social Security Contribution Levy from 120 million to rupees 60 million, a government statement said.

The draft bill to amend the Social Security Contribution Levy Act No.25 of 2022 was approved by Cabinet of ministers recently.

The Cabinet also approved to amend the Value Added Tax Act No. 14 of 2002, reducing the threshold to charge the tax from 60 million rupees from 80 million rupees of revenues per year.

Both actions will widen the businesses from which the tax is charged.From January 1, 2024, value added tax is to be raised from 15 percent to 18 percent. A comprehensive list of exemptions has not been made public yet.

However, certain individuals are circulating misconceptions about this measure. There are claims that life will become challenging from 1 January, and families will face substantial expenses due to the tax revision.

It is important to clarify that while there will be some additional expenses resulting from the tax reform, they may not be as significant as some are suggesting.

Additionally, the Government is actively taking measures to alleviate the burden on the public by eliminating other taxes imposed on goods and services subject to VAT and making appropriate tax adjustments.

For instance, currently, port and airport taxes are levied on specific imported goods. To mitigate the impact of the VAT increase, positive measures are being implemented, including the removal of port and airport taxes on these goods, with only VAT being maintained.

Ministry of Finance, Tax Policy Adviser Thanuja Perera said that the Government is diligently addressing the impact of the Value Added Tax (VAT) revision. This involves the elimination of additional taxes on goods and services under VAT and implementing necessary tax adjustments.

It was highlighted that even individuals with expertise in economics are circulating a misconception, suggesting that family monthly expenses will increase by an additional Rs. 40,000 post the VAT implementation on 1 January.

Moreover, it was emphasised that nearly 90 types of items, including educational services, electricity, health, medicine, passenger transportation, as well as all vegetables and fruits, are exempt from VAT. Additionally, VAT does not apply to 65 types of items subject to the Special Commodity Levy.

Perera said the VAT was initially introduced in Sri Lanka through Act No. 14 of 2002, marking two decades since its inception. Originally set at two rates, it was later revised to three rates.

The VAT rate underwent various changes and was reduced to 8% in 2019, resulting in a significant decline in State income. Subsequently, it was raised to 15%.

The VAT Amendment Act, presented to Parliament last month, further increases the VAT rate from 15% to 18%, effective 1 January 2024. It is challenging for us to continue relying on concessions.

It must be emphasised that this tax amendment has been implemented to address the crucial matter of increasing State income.

Several vital tax reforms have been implemented in the past, including adjustments to the VAT registration limit. From 2019, the limit stood at Rs. 15 million, increased to Rs. 300 million on 1 January 2020, rendering many VAT-registered files inactive.

However, the limit was later reduced to Rs. 80 million and, as per the recent amendment, lowered to Rs. 60 million from 1 January 2024.

Additionally, the new amendment eliminates numerous tax exemptions, aiming to recover substantial revenue lost by the Government.

By: Staff Writer

January 01, Colombo (LNW): Among the top 10 export markets, Italy and France have shown a strong performance in both the month of November 2023 and the period January to November 2023 when compared to the corresponding periods in the previous year.

Furthermore, UAE has shown significant performance during the period January to November 2023 compared to the corresponding period in the previous year, Export Development Board (EDB) data shows.

Exports to the United States of America, Sri Lanka’s single largest export destination, decreased 7.27 % to $ 223.26 million in November 2023 compared to November 2022. Further, exports to the United States decreased by 18.24 % to US $ 2,504.82 million in the period January to November 2023 compared to the same period in 2022.

In November 2023, exports to Free Trade Agreement (FTA) partners constituted 6.5% of the total merchandise exports, experiencing a notable 14.45 % decrease to reach $ 60.35 million compared to November 2022.

Specifically, both exports to India and Pakistan recorded decreases of 13.89 % and 19.78 %, respectively, during the month of November 2023 compared to November 2022.

The negative performance of India was driven by lower exports of animal feed (-38.62%) and petroleum oil (-42.15%), while Pakistan’s negative performance was led by decreased exports of betel leaves.

Exports to Free Trade Agreement (FTA) partners accounted for 7.2% of total merchandise exports decreased by 1.88 % to $ 846.45 million during the period January to November 2023 compared with the corresponding period the previous year.

Exports to India and Pakistan decreased by 1.76 % and 3.22 % respectively during the period January to November 2023 compared to the corresponding period in 2022.

The negative export performance of India was driven by lower export of animal feed (8.67 %), while Pakistan’s negative performance was led by decreased export of sheet rubber and other articles of stones.

Exports to the European Union (EU) that comprised 21% of Sri Lanka’s exports during the month of November 2023 decreased by 0.02 % y-o-y to $ 228.31 million.

Further, exports to the EU decreased by 11.2 % y-o-y to $ 2,485.88 million during the period January to November 2023 compared to the corresponding period the previous year.

During the period January to November 2023, the breakdown of exports to the top five EU markets that accounted for 78 % of Sri Lanka’s total exports to the EU were: Italy $ 632.04 million (increased by 7.16 %), Germany $ 529.8 million (decreased by 22.63 %), the Netherlands $ 306.46 million (decreased by 20.95 %), France $ 285.45 million (increased by 18.09 %) and Belgium $ 205.24 million (decreased by 213.42 %).

By: Staff Writer

January 01, Colombo (LNW): As 2024 approaches, it’s time to reflect on the past and anticipate the future for Sri Lanka as the treasury confirmed that the Government was well-equipped with sufficient funds to hold the upcoming elections scheduled for mid this year.

As Sri Lanka welcomes New Year 2024, some new rules including tax revisions such as VAT hike comes into effect as it’s the first day of the month several changes will come into effect.

This year, more than 40 countries, including seven with large populations, are scheduled to hold national elections, potentially leading to significant changes in leadership.

The Treasury disclosed that the Government was well-equipped with ample funds to conduct the upcoming elections scheduled for this year.

The Election Commission (EC) recently stated that it had submitted a total budget estimate of Rs. 10 billion to the Treasury for three upcoming elections, including the Presidential Election this year.

As per the EC report, the forthcoming Presidential Election is expected to take place between 16 September and 17 October next year, and the anticipated date for the General Election is 2025.

Meanwhile, President Ranil Wickremesinghe recently informed Parliament that both the Presidential and Parliamentary Elections were scheduled to be held next year.

As per Central Bank of Sri Lanka (CBSL) statistics, the trade deficit narrowed in October and November 2023 compared to a year earlier, as a result of the combined impact of an improvement in exports and a compression in imports.

Exports recorded a Year-on-Year growth for the first time since September 2022 Sri Lanka’s merchandise exports increased by 4.4% to US$ 968.8 Million in November 2023 compared to October 2023 as per the provisional data released by the Sri Lanka Customs.

However, it is a 2.67 % decrease when compared to the value recorded in November 2022.

Monthly workers’ remittances continued to exceed $ 500 million and recorded a notable increase in November 2023, compared to the corresponding period in 2022. Tourist arrivals soared during the festive season, contributing to high earnings from tourism.

Foreign investments in the Government securities market continued to record a net outflow since July 2023, but remained positive on a cumulative basis during the year.

Gross official reserves amounted to $ 3.6 billion by end-November 2023. The Sri Lankan Rupee continued to remain stable against the US Dollar during November 2023.

The Central Bank absorbed $ 117 million from the domestic foreign exchange market on a net basis during November 2023. Overall, the Central Bank has purchased around $ 1.8 billion on a net basis during January to November 2023.

Furthermore, the Central Bank in its ‘Financial Stability Overview 2023’ released on Friday (29) has stated that the easing of domestic monetary policy since mid-2023 is anticipated to facilitate the recovery in financial intermediation, which was witnessed through the gradual recovery in banking sector credit during Q3 of 2023.

By: Staff Writer

January 01, Colombo (LNW): The Finance Ministry has decided to postpone the decision to open tax files for new vehicle registrations, new revenue licences, opening of new current accounts and property purchases from January1 2024 by about a month, Finance State Minister Ranjith Siyambalapitiya said.

He noted that the decision was taken because most people have not opened their tax files yet.Therefore, the Ministry has decided to give a time of one month for those people to open their tax files, the Minister said.

“This registration is not difficult. Anyone can log on to the official Inland Revenue Department website and register themselves through the online system. All it takes is the National Identification Card (NIC) of the person to open an account,” he said.

“There is no intention that every registered person must pay taxes. If any person does not exceed his or her monthly income of Rs. 100,000, they are not entitled to the tax payments. We take the decision based on what is said by the tax file opener,” he said.

However, registering by opening a tax file is extremely valuable for a person, the Minister said.

After January, the tax file number will be made compulsory when purchasing new vehicles, obtaining new revenue licences, opening current accounts, and purchasing property, Minister Siyambalapitiya said.

With effect from January 01, 2024, any individual who is at the age 18 years or more, or who attains the age of 18 years on or after January 01, 2024, it is mandatory to register with the Inland Revenue Department and obtain a TIN (Taxpayer Identification Number).

Furthermore, any person who receives an income over Rs. 1,200,000/- for a year of assessment (from April 01 of a year to March 31 of the following year), shall register for the Income Tax.

Persons who do not obtain registration, as per above instructions, will be registered by the Inland Revenue Department and shall be subjected to a penalty not exceeding Rs. 50,000/-.

Sri Lanka’s 2024 budget has proposed several tough measures including prosecuting those who fail to file tax returns and making the submission of a copy of the Certificate of the Taxpayer Identification Number (TIN) mandatory for several transactions.

The moves come after the government failed to achieve its one million target on new tax files this year.

A special tax return requirement will be introduced for the deduction of 2.5% withholding tax levied on the sale price of any gem sold at an auction conducted by the National Gems and Jewellery Authority. Exemption under Inland Revenue Act will be allowed subject to such return information.

ECONOMYNEXT – Sri Lanka’s central bank has won the go ahead from political authorities to generate inflation up to 7 percent though an agreement signed with President Ranil Wickremesinghe as Finance Minister under a new monetary law.

The inflation target has been set with the Minister of Finance under a new Monetary Law that has allowed explicit macro-economic policy involving targeting potential output (printing money for growth).

“The Central Bank of Sri Lanka Shall aim to maintain quarterly headling (sic) inflation rate at the target of 5 percent,” an agreement made with President Ranil Wickremesinghe as Finance Minister has said.

“For the purpose of Section 26(5) of the Central Bank Act, the margin is ±2 percentage points.”

“Quarterly headline inflation rate” refers to the simple average of the year – on – year percentage changes in the monthly CCPI for the three months of the corresponding quarter.

The Sri Lanka’s central bank had on its own set a 5 percent (12-month) inflation target for many years.

The agreement allows the central bank to inflate the economy up to 7 percent.

Inflation of 7 percent allows bureaucrats to slash real salaries of the people, as well as savings of retirees and older people or capital available for investment by businesses, by the same amount.

Inflation hurts the poorest most, slashes savings of retirees and also reduces real savings available for businesses and the government, triggering foreign borrowings and makes any kind of long-term planning difficult.

The 5 percent inflation target is about 2.5 percent annual the rate found in countries with monetary stability which are now mostly developed nations and some East Asian nations and dollarized regions.

Singapore, the country which Sri Lankans hope to emulate, has generally maintained inflation below key OECD countries, using exchange rate based policy.

Sri Lanka’s central bank has since the end of the war has printed sufficient money under cover of a 5 percent inflation target to trigger currency crises in 2011/12, 2015/16, 2018 and 2020/2023.

Money is usually printed to target potential output.

Sri Lanka and Pakistan has the worst central banks in the region, triggering serial currency crises and bringing the respective countries to the brink or actual external default as well as social unrest.

Before the IMF’s Second Amendment which allowed un-elected economic bureaucrats (supported by the agency in some cases) to choose second or third rate monetary anchors and depreciate currencies at will, Sri Lanka had the same inflation as the US, though forex shortages emerged after the central bank was set up as money was printed to suppress rates and later to re-finance credit programs.

Along with the rise in inflation, interest rates also edged up and stabilization programs that follows interest rate suppression or potential output targeting then led to steep spikes in interest rates.

Similar inflation targets or slightly higher and similar types of monetary regimes are found in most countries hit by external default.

Source: Economy Next