Sweeping tax cuts announced to ignite economy
„VAT reduced to 8%; NBT on domestic products and services abolished „VAT on condos abolished; construction industry tax halved „PAYE tax threshold doubled; VAT threshold on biz raised to Rs.25mn
Remittances and places of religious worship exempted from all taxes
Telecom levy reduced by 25%; taxes on IT and related services exempted
To curtail agricultural imports to support domestic production
Sri Lanka’s newly-appointed government yesterday introduced a wide range of tax cuts to support the local businesses and domestic production while revealing plans to discourage agricultural imports to the country with import substitution.
The Cabinet of Ministers yesterday approved a special Cabinet paper presented by President Gotabaya Rajapaksa to implement the economic revival programme promised in his election manifesto.
Announcing the Cabinet decisions yesterday in Colombo, Cabinet Co-spokesperson and Information and Communications Technology and Technology and Innovations Minister Bandula Gunawardana revealed that the Nation Building Tax (NBT) on domestic products and services would be abolished while 15 percent VAT and 2 percent NBT on goods and services would be combined and reduced to 8 percent, with effect from December 1.
He also said the Economic Service Charge, debt servicing tax and debit tax on banking and financial institutions, Capital Gains
Tax on stock market transactions and VAT on condominium properties would be abolished to support the economic revival.
The threshold for the withholding tax on interest income and other forms of withholding will be raised to Rs.250,000 monthly interest income.
However, VAT on banking, financial services and insurance will be maintained at 15 percent.
It was also decided to double the threshold for the Pay as You Earn (PAYE) tax to Rs.250,000, from Rs.125,000 per month.
In a bid to provide immediate relief to SMES, the VAT threshold on businesses will be raised to Rs.25 million per month or Rs.300 million per annum, from the current Rs.1 million per month.
Recognising the trickle-down effect of construction projects, Gunawardana announced that the current 28 percent income tax on the construction industry would be halved to 14 percent.
Also, remittances and places of religious worship will be exempted from all taxes, with effect from December 1.
Further, aiming to support the tech industry, the Cabinet has decided to exempt the information technology and related services from all taxes while reducing the telecommunication levy by 25 percent.
The Cabinet has also decided to recognise the tourism businesses as exports for zero rate, provided that 60 percent of turnover is sourced from local supplies. President Rajapaksa expects the tourism industry will be beneficial to local agriculture and locally-made manufacturing businesses.
Cabinet Co-spokesperson Plantation Industries and Agricultural Exports Minister Dr. Ramesh Pathirana noted that the government would take measures to curtail agricultural imports such as pepper, tea, cinnamon and rubber to the country while increasing local production.
President Rajapaksa has recommended to place such agricultural products on negative list or to increase custom duties substantially.
The Cabinet has also decided to amalgamate the NBT at the point of the Customs with the Ports and Airports Development Levy (PAL) and to make the applicable rate at 10 percent to safeguard the local economy.
Pathirana stated that the government has decided to exempt the agriculture sector from taxes to support import substitution.
Addressing the concerns regarding a potential expansion of budget deficit due to tax cuts, Gunawardana was optimistic that the introduced tax cuts would revive the economy, leading to expansion of the current tax base.
He noted that the government would also focus on increasing the non-tax revenue collected from the state-owned enterprises, which only contributes 15 percent to the overall state revenue at the moment.
President Rajapaksa has requested the government to cut down non-essential state expenditure on vehicles, foreign tours, buildings, various other facilities and to prioritise expenditures.
The tax revisions will be implemented as a matter of priority pending Parliamentary approvals for amendments to the relevant structures.