Bankers in limbo on debt repayment levy

Commercial banks haven't still received clear directions on the tax on transactions proposed in the last budget, despite their official communication to the Treasury through the Sri Lanka Bankers' Association (SLBA) more than five months ago, officials say.

The budget proposed a 0.02 per cent tax (this is down from 0.05 per cent 2016 when it was first proposed) on banking transactions. This tax has to be borne by the banks, not customers. In 2016, Rs. 106 trillion was recorded as transactions and the Treasury slapped this on banking transactions expecting to earn a large amount through this tax called the "Debt Repayment Levy". It's a temporary tax that was enacted for the three years to generate cash for government's debt repayment and will yield Rs. 20 billion.

Some analysts said high networth investors are starting to sell banking sector shares during the past month on account of expectations that the sector will be temporarily hit with taxes. Apart from the debt repayment, a withholding tax of 2 per cent on savings account is also to be applied. "We want clarity on this as well,” a banker told the Business Times noting it's not clear if this tax is charged on senior citizens’ sav- ings accounts as well.

An analyst told the Business Times that compared to this year, in 2017 many were 'clearer' on where the economy was heading. With the loose monetary policy of last year, many got into banking shares, but this trend has been waning since the start of this year. Others say this trend won’t hold as this sector is slated to perform well. They also said that mostly HNB shares were sold by three Harry Jayawardena controlled companies in January and February this year. They disposed 11.343 million (2.89 per cent) of the 18.35 million unregistered shares (4.6 per cent) of HNB during the past two months.