• It is policy now to reduce the tax burden of people!

    When president Mahinda Rajapaksa handed over power to the yahpalana leadership in January 2015, the economy was growing at 7% which was the second highest growth rate in Asia. Inflation was all time low and interest rates were at single digit. The currency was stable. The government tax income was around 11% of the GDP. Despite heavy pressure from international experts President Rajapaksa was reluctant to increase taxes on people.

    However the new government, which came to power in 2015, thought differently. They couldn’t care less about the difficulties of people when they followed the advice of foreign experts to raise taxes. Compared to the tax income of Rs 1 trillion in 2014 the government had planned to collect Rs 2 trillion as taxes in 2018, a 100% increase. 60% of this increase was on goods and services directly affecting the cost of living of people. The tax increases resulted in less consumption and also corporations put restrictions on investments. The slow growth of exports contributed to the depreciation of currency.

    On October 25th hon Mahinda Rajapaksa assumed duties as the new Prime Minister bringing a new era of hope to a shattered nation. A few days later he also assumed duties as the minister of Finance. The first action of him as the minister of Finance was to reduce the taxes on a range of consumer items and also give relief to the business community.


    1. In order to ease the pressure on high cost of living while also protecting the local farmer, Special Commodity Levy will be reduced on Dhal by Rs.5 per Kg, Chickpeas by Rs. 5 per Kg, Black gram by Rs.25 per Kg. Customs Duty will also be waived on Wheat grain to Rs. 9 per Kg from the existing waiver of Rs.6 per Kg. Sugar will be brought under the Special Commodity Levy whereby the applicable taxes on Sugar will also be reduced by Rs.10 per Kg. Accordingly, the commodity prices will be reduced with immediate effect.

    2. Given the impact of fuel pricing on all strata of the society specially those engaged in transport, agriculture and fisheries sectors, price of Petrol (Octane 92) will be reduced by Rs. 10 per litre, Auto Diesel by Rs.7 per litre and Lubricants including the 2T lubricants used in three-wheelers and small agricultural engines by Rs.10 per litre .At the same time a cost based pricing mechanism will be implemented on fuel in place of the monthly fuel price formula.

    3. A guaranteed price scheme will be introduced for Paddy, Onion and Potatoes produced locally by our farmers. Accordingly, SCL will be raised during harvesting period to protect farmers through remunerative guaranteed prices. As potatoes and B-Onions are being harvested, SCL on potatoes and B-Onions will be maintained at Rs.40 per Kg.

    4. In order to mitigate the impactof adverse weather conditions which resulted in farmerslosing their livelihood and becoming heavilyindebted, interest and the penal interest incurred by farmers and small Paddy Mill owners on loans up to a maximum of Rs.50 million, from all Commercial Banks during the past 3 years, will be written off in full and will be borne by the Government.

    5. The maximum threshold on Loan advances given by Samurdhi Banks to Samurdhi beneficiaries to support their livelihood activities will be increased by Rs.10,000/-.

    6. Fertilizer prices for paddy will be maintained at Rs.500/50kg bag and fertilizer prices for other crops will be reduced to Rs. 1,000/50kg bag from Rs. 1,500/50kg bag.

    7. The concessionary income tax rate of 14% on agriculture is presently applied only for the companies engaged in agricultural businesses. The income of individuals from Agricultural undertakings will also be reduced from the existing maximum rate of 24% to 14% so that individual farming agriculture is also encouraged.

    8. The concessionary Income Tax rate of 14% is presently applicable under the SME categories only for Companies. This rate will be extended to include individuals including those providing professional services.Therefore,the income tax rate for professional services will be reduced from 24 percent to 14 percent.

    9. Withholding tax will be exempted on Interest on any savings and fixed deposits maintained in any financial institution.

    10. To encourage local entrepreneurs, professionals and migrant workers to remit their earnings in foreign currencyon services provided outside Sri Lanka, Income tax will be exempted on such remittances.

    11. The adverse impact created by high indirect taxes will be mitigated by simplification of VAT and NBT. The VAT threshold will be increased from Rs.12 million per annum to Rs.24 million per annum.

    12. The threshold for the VAT liability of wholesale and retail sector also will be increased from Rs.50 million to Rs.100 million per twelve months providing benefits to small traders and businesses.

    13. The VAT rate applicable on the import of Sawn Timber will be reduced to 5% to support the local Construction Industry.

    14. VAT on import of fabric will be exempt providing benefits to the small and medium garment manufacturers.

    15. Considering the high tax imposed on the Telecommunication services, the Telecommunication Levy of 25% will be reduced to 15%.

    The thrust of these initiatives is to encourage production and simplify the tax system. It will certainly help households with additional income in their hands. The proposed changes to the tax system will also encourage inward remittances and savings.

    These concessions should not be compared with the price reductions that one saw with the 100-day government of 2015. That was purely a political gimmick with a short-term objective of preparing for an election. This time it is the government policy.

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