CB Governor: Lower taxing of forex earners fails to bring returns

Strongly defending the high taxing of exporters and others earning in foreign currency, Central Bank (CB) Governor, Nandalal Weerasinghe claimed that preferential tax treatment accorded to them for many decades have not brought substantial returns to the country.

He noted that these foreign exchange earning exporters and corporates diversifying its business overseas have so far failed to contribute their share for the betterment of island nation.

The CB Governor questioned as to whether the decades-long practice of lower taxes for foreign currency earning exporters and businessmen had delivered the country’s expected objectives.

He was speaking at the Post – Budget 2023 forum on Tuesday outlining key economic policy adjustments made by the CB to avert an economic crashlanding.

On the other hand the tax exemptions and concessions offered by the Board of Investment and other authorities expecting to attract foreign direct investments have not yielded the desired results.

“Successive governments’ maintained these preferential tax rates of 14-15 per cent for foreign exchange earners compared to 24 or 28 per cent for others,” he said.

He was responding to Sujeewa Mudalige, CEO PwC Sri Lanka who speaking at the forum expressed serious concerns on taxing exporters and other foreign exchange earners at the same level as the others at the proposed 30 per cent, which could be unfavourable to attract much needed foreign exchange.

He pointed out that even before the tax rate was raised to 30 per cent, companies had been diversifying businesses overseas instead of expanding in Sri Lanka owing to policy inconsistencies and poor doing-business conditions. The reason was that they receive very generous tax incentives from countries like Bangladesh, Vietnam, and Egypt etc.

The CB Governor emphasised the need of implementing 2023 budget proposals and fiscal and monetary reform measures to increase crucial foreign exchange inflows achieve stability in the economy averting the reoccurrence of the crisis.

CB, he said, is now compelled to tackle a liquidity shortage in banks, preventing the fall in short term market rates.

Treasury Secretary K. M. Mahinda Siriwardana said the country is facing a challenge to stabilise the economy and the private sector has a vital role to play in assisting the government to avert the economic crisis.