Medamulana tax cumbersome for local banks

Sri Lanka’s debt recovery levy or Medamulana tax on banks came into effect on Tuesday, October 1 although it was scheduled to be implemented with effect from April 1, Finance Ministry sources said.

The implementation of the new tax didn’t materialise in April due to the delay in issuing clear directions and guidelines from the fiscal and monetary authorities.

It was rescheduled to September 1 but the debt recovery levy was not enforced owing to some administrative and technical issues faced by banks.

According to Finance Minister Mangala Samaraweera, this well planned bank levy will be a tax deductible business expense.

The 2018 budget proposed the special levy for financial institutions to be implemented with effect from April 1, 2018 to be applicable for three years.

The implementation of the levy had been delayed for five months due to lack of clarity in levying the tax as there was a confusion as to whether it should be levied on all financial transactions or only cash transactions of banks, a senior official said.

Some changes will have to be made to the bank’s computer system and new software is required to calculate the amount of cash transactions as there are two modes of bank transactions, one is the cashless transaction and the other is cash transactions.

“This levy will not be passed on to the customers,” the Finance Minister has said adding that the new levy will generate Rs. 20 billion for the government’s debt repayment.

Therefore it will become another levy on banks’ profits affecting the whole banking system in the country, an economic expert told the Business Times. (BS)