Following the recent tax reforms senior economists and leaders of the business community are of the view that it will give a much needed boost to the overall economy of the country, the Sunday Observer learns.
Senior Lecturer in Economics, University of Kelaniya Dr Ajith Dissanayake told the Sunday Observer the recent tax reform was a need of the hour. “Through the exempt of taxes we will be able to see a reduction of living expenses. Especially the removal of PAYE tax will encourage people to engage more in economic activities. This would eventually uplift the production output of the country” Dr Dissanayake said.
He stressed the importance of balancing the loss of government revenues after the reduction of taxes. “Government should prioritise the managing of this situation well. However, there are signs that the government has implemented cost cutting strategies to reduce government expenses in the wake of reduced government revenue” the Senior Lecturer said.
Meanwhile, the business community and investors have gained a big leap by changes in the tax policy. “The tax reform was very favourable,” President of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) Ruwan Edirisinghe said.
“It is not just favourable to the Agriculture, Fisheries, IT and Construction sectors, but benefits all industries and businesses” he explained.
He said, earlier every business which has rupees one million turnover a month was subjected to the Value Added Tax (VAT) scheme. “In fact one million is not big money. Now they have increased it up to Rs 200 million and it saves the Small and Medium enterprises”, Edirisinghe said.
He emphasised the importance of the Government looking into the reduction of bank interest rates which would further minimise the barriers for local business growth.
The government mainly reduced VAT from 15% to 8% while many other taxes including the Nation Building Tax (NBT) were eliminated.
Income from the Information Technology and enabling services, Agriculture, Fisheries and Livestock are exempted from all taxes for the year of Assessment 2019/2020 while income earned from the supply of services for the receipt of foreign currency are exempted from income tax, with effect from December 1, 2019. In addition, the Income Tax rate applicable on the construction industry was reduced from 28% to 14%, with effect from the year of Assessment 2019/2020.
Several changes were also made to income tax related to individuals. The tax free threshold of the employment income of all public and private sector employees for the purpose of the Pay-As-You-Earn (PAYE) tax shall be increased from Rs.100,000 to Rs. 250,000 per month and excessive personal income shall be liable for income tax at the progressive rate of 6%, 12% and 18% for each tax slab of Rs. 250,000, with effect from January 1, 2020. Also, the income of an individual up to Rs. 3,000,000 per annum from any source of income shall be exempted from income tax and the excess income to that amount shall be liable for income tax at the progressive rates of 6%, 12% and18% for each tax slab of Rs. 250,000, with effect from January 1, 2020.
Moreover, the interest income up to Rs. 250,000 per month is also exempted from Withholding Tax (WHT), with effect from January 1, 2020 while religious institutions are fully exempted from income tax, with effect from December 1, 2019.