26 January, 2020

Blog

Tax Cuts: Control The Damage Before The Unconventional Stimulus Backfires

By W A Wijewardena –

Dr. W.A Wijewardena

Damage control exercise by Finance Ministry

In a background of some contrasting signals from various parties regarding the generous tax cuts introduced by the Government, the Finance Ministry has attempted to do a damage control exercise by issuing a press notice last week. The confusion was on its short- and medium-term outcome, specifically how it would serve as a stimulus package.

Cabinet co-spokesperson Dr. Bandula Gunawardane, hailing the new tax cuts asserted, among others, that it would in fact leave more cash in the hands of both individuals and businesses enabling them to overcome the economic hardships they had been undergoing for some time.

The public at large welcomed it because they thought that they would have more cash to spend. The business sector, including the chambers, watched the developments cautiously without making a too quick judgment. At the same time, Moody’s Rating Services branded the stimulus package as ‘credit negative’ implying that it would lead to a downgrading of the country’s present rating of B1/Stable unless it is managed properly.

Fitch Rating warned that the stimulus package would derail the budget disciplining exercise started by the previous Government. A similar view was opined by IMF’s Sri Lanka Country Head too. In a similar note, the outgoing Central Bank Governor Dr. Indrajit Coomaraswamy has indicated that the stimulus should not undermine the debt sustainability exercise being carried out by the Government.

The World Bank’s Chief Economist for South Asia, Hans Timmer, delivering a public lecture at the Central Bank’s Centre for Banking Studies was more polite in expressing his concerns. He said that though there may be reason for fiscal stimulus, there is no space for it in Sri Lanka and the policy makers should strike a proper balance between fiscal stimulus and the need for preventing the overheating of the economy – a situation where the aggregate demand rising faster than the aggregate supply.

What it means is that if Sri Lanka’s potential growth is low, stimulating the economy either through fiscal policy or through monetary policy would simply increase the demand causing the prices to increase and the exchange rate to fall. Bothe these outcomes are what the Government wants to prevent from happening at any cost.

Meanwhile, Sri Lanka sovereign bonds maturing in 2027 and 2028 witnessed a fall in market prices by about 4 US cents raising market interest rates from 6.8% to 8%. Against these contrasting signals, Finance Ministry, to its credit, has assured that the programme to consolidate the budget will not be halted and the Government will stick to its budgetary targets by cutting down the unnecessary expenses It had also reiterated that it would continue to negotiate with IMF to save the present Extended Fund Facility or EFF of which the final instalment is due to be released in mid-2020.

The irrelevant Laffer Curve for Sri Lanka  

As pronounced by the Cabinet co-spokesperson Dr. Gunawardane, the rationale for the tax cuts has been to lower the rates and rope in more taxpayers so that the overall revenue of the Government would increase over the time.

This logic is indeed in line with what is known as the Laffer Curve, named after the American economist Arthur Laffer. According to Laffer, there is an optimal income tax rate up to which the revenue will increase and if the rate shoots over that optimal rate, revenue will begin to fall. Hence, when a country is in the revenue falling region, the reduction of the income tax rate would certainly increase revenue instead of reducing it.

Empirical studies have shown that this optimal income tax rate stands at around 70% for most of the countries. Sri Lanka’s marginal income tax rate is just 24% and therefore, it has not yet reached the level of taxation that prompts an increase in revenue if the rate is cut.

Hence, it is not the Laffer Curve which may have prompted Sri Lankan authorities to cut tax rates but some other consideration. That is to provide an additional income to the hands of the taxpayers, catch more liable people into the tax net and increase the tax revenue by getting more people to pay taxes. This last goal had been expressly mentioned in the election manifesto.

According to press reports, the tax cut is intended to address both the individual taxpayers and the corporate taxpayers.

Promised relief to individuals may backfire

In the case of individuals, the presently available tax-free allowance of Rs. 1.2 million in two slots, namely, Rs. 700,000 for employment income and Rs. 500,000 for non-employment income, will be increased to Rs. 3 million. The applicable marginal tax rate will be reduced from the current 24% to 18%.

At the same time, the advance tax collection mechanisms involving the Pay-As-You-Earn or PAYE out of employment income and the withholding taxes or WHTs on interest, dividend, and non-employment income at 5% at source will be abolished. All these are final taxes at present and therefore, once they are abolished, all individual taxpayers are required to pay income tax on those incomes too provided the total income is higher than Rs. 250,000 per month or Rs. 3 million per annum.

The applicable tax rates are 6% on the first Rs. 250,000, 12% on the next Rs. 250,000 and 18% on the balance. The current timeline introduced by the Inland Revenue Department or IRD is to pay the due tax at the end of every quarter and make a final adjustment tax payment at the end of the year. Hence, individual taxpayers who receive both employment and non-employment income will have to make the due tax payment to IRD quarterly.

According to the current law, it is mandatory for every taxpayer to inform IRD in advance the estimated tax liability in every quarter and pay the taxes accordingly. Hence, the abolition of PAYE and WHTs will pass the burden of remitting the due taxes to IRD from employers, banks and other payment agencies to individual taxpayers. In the case of employers and so on, the payment software used by them have already been adjusted to deduct these taxes and remit to IRD. Hence, it is not a burden for them to make those payments. However, the individual taxpayers, especially those of the small retail type, will have to make an extra effort to meet the tax payment obligations in time.

Expansion of VAT coverage

With regard to businesses, the most explosive tax cut has been for the Value-Added Tax or VAT. That tax had been introduced as an improvement to the Business Turnover Tax or BTT which had reigned the country’s indirect taxes since the early 1960s. BTT was a multi stage tax which taxed businesses again and again when they moved from one stage of production to another. For instance, consider the tyre industry.

Assume that it has four stages of production just for clarity of explanation: rubber manufacturing as a raw material, wholesale trading of rubber, tyre manufacturing and retailing those tyres to final users. If input rubber worth of Rs. 100 is sold by wholesalers to tyre manufacturers for Rs. 150 and the tyre manufacturer converts it to a tyre worth of Rs. 200 and the retailer sells it to the final user for Rs. 250, a BTT of 10% would impose taxes in the following manner causing higher prices for each of the users in the production and consumption chain: The rubber producer Rs. 10 which is added to the price which he charges to the wholesaler; the latter prices it at Rs. 160 charging a BTT of Rs. 16 from the tyre manufacturer. His price is not Rs. 200 but Rs. 216 over which he collects a BTT of Rs. 21.60 from the retailer by adding it to the price. The retailer’s buying price is now Rs. 237.60 and comes up with a selling price of Rs. 287.60 over which he collects a BTT of Rs. 28.76 from the final user. Accordingly, the price payable by the final user is Rs. 316.26. The total BTT collected by the Government is Rs. 76.36. If it is a value added tax of 10%, it is equivalent to a tax on the final product which is simply Rs. 25.

Because of this position, if the governments are to earn a higher tax revenue, they have to adopt a multitude of strategies. That was what each successive government did in the past: increasing the rate, expanding the number of VAT payers by lowering the turnover limit to Rs. 12 million per annum for eligibility and bringing more economic activities under its base.

Will VAT changes help the Government?

It in fact did the trick and the revenue increased from Rs. 171 billion in 2009 to an estimated Rs. 600 billion in 2019. The yield also increased from 3.5% of GDP to 4% of GDP during this period. From the Government’s point, VAT has, therefore, been an efficient tax. However, more tax revenue means more resentment by taxpayers. The present Government appears to have yielded to that resentment and introduced a sweeping change to VAT. Thus, the rate has been reduced from 15% to 8% with the exception of VAT on banking, insurance and financial services.

At the same time, the eligibility threshold of turnover has been increased from Rs. 12 billion per annum to Rs. 300 billion taking out a large number of small businesses from the tax net. It is not a relief to businesses but a relief to consumers since VAT, being an indirect tax, is supposed to be passed on to the latter.

In addition, condominium property has been exempted from VAT, while tourism sector businesses have been exempted for five years provided they increase the use of local inputs to 60% of their revenue. The former will boost condominium sales which are not doing well due to general economic slowdown.

The latter will not help tourism sector businesses since VAT is, as a general rule, passed onto the tourists. It will therefore reduce the costs of tourists and encourage them to seek Sri Lanka as a tourist destination. Thus, it could have been implemented as an incentive for tourists without bringing the 60% input requirement into it. The revenue loss due to VAT reduction is estimated to be around Rs. 300 billion in 2020.

Relief to businesses

The other business-related tax cuts are the abolition of Economic Services Charge or ESC, Nation Building Tax or NBT and the Capital Gains Tax or CGT. The Telecommunication Levy which stands at 15% now has been cut by a fourth so that new Levy rate becomes 11.25%. It is not a revenue earning by the Government but by the Telecommunication Regulatory Authority or TRC.

Further, the Debt Repayment Levy which had been imposed on banking and financial institutions as a way to get their support to repay debt has been abolished. There have been production related tax cuts as well. Accordingly, income from agriculture, fishing and livestock has been exempted from income tax. Similarly, income from Information Technology or IT enabling services has also been exempted from taxes. Professional income being received by Sri Lankans in foreign exchange and interest income on foreign currency deposits have also been exempted from income tax.

The estimated loss in revenue

Based on the estimated revenue of the Government in 2019 from the taxes which have been abolished or reduced, the immediate loss of revenue to the Government ranges between Rs. 650 billion and Rs. 680 billion. This loss amounts to a third of the Government revenue or about 4% of GDP. In the medium term, a part of this could be recovered by roping in more taxpayers into the tax net, but in the short term, the Government will have to raise these funds by borrowing from the market after increasing the Government’s borrowing limits through Parliament.

But when such a large amount is put on the market, there will be pressure for interest rates to rise, defeating the Government’s objective of keeping interest rates below 10%. The immediate jump in the interest rates could be avoided if the same is borrowed from the Central Bank but it would amount to increasing the money supply putting pressure for domestic prices to increase and exchange rate to depreciate. It thus will defeat the Government’s objective of keeping inflation below 5% and strengthening the exchange rate. This is a policy paradox which brings in harmful outcomes whatever the course of action the policy makers would be taking.

The plight of individual taxpayers

The abolition of the PAYE tax and the WHT on interest and non-employment income will have a dubious effect on individual taxpayers. At present, the PAYE tax collected at the time of earning income and WHT collected at 5% at source are considered as final tax payments. Hence, after they are abolished, the individual taxpayers are required to indicate them in the annual tax returns and pay taxes at the normal tax rates if they have a tax file or open up a file and pay taxes if they do not have a tax file provided the amalgamation of incomes from all these three sources exceed the minimum tax-free allowance of Rs. 3 million.

There is a relief by way of a reduction in the marginal tax rate from 24% to 18%. However, this relief is being subsumed by two factors. One is the addition of two income sources which had been declared as final tax payments earlier to income which is now subject to income tax. The other is the reduction of the tax slabs from Rs. 600,000 earlier to Rs. 250,000 now. As a result, even at lower rates, a taxpayer will have to pay more now compared to the previous system. It would in fact increase the total tax income as expected by the Government.

Conditions for success

The success of the present tax reduction in raising revenue in the medium term will therefore depend on the efficiency of the Inland Revenue Department in roping in more taxpayers and collecting taxes from them.

With the new Revenue Administration Management Information System or RAMIS and the arrangement to pay taxes through LankaPay operated by LankaClear, it is not a serious issue for IRD to upgrade its systems and handle more tax files with the available human resource base. But it takes time and unless it is handled carefully, the stimulus package will backfire causing a large gap in the budgetary financing. Avoiding this pitfall should be the topmost priority of the Gotabaya Rajapaksa administration.

*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

Print Friendly, PDF & Email

Latest comments

  • 31
    1

    All calamities are postponed until after the General Election in April. President is hellbent on getting 2/3 of parliament so he can bring Basil to parliament, Mahinda to become the next president, etc. People get the leaders they deserve! Now pay!

    • 9
      1

      Still. W A Wijewardana,

      What does a mean IQ of 79 of a populace mean? What happens when when a good part of the populace prostrate to imbecile saffron clad monks, and the crook politicians bait them?

      From the grape vines, …,

      While speculation was rife that the Forensic Audit report conducted on the bond scam had revealed that there have been irregularities pertaining to bond issues since 2005 and the proroguing of parliament was an alleged attempt to prevent this revelation in the House, Committee on Public Enterprises (COPE) former Chairman Sunil Handunnetti said proroguing would naturally prevent the document from going public.

      • 0
        1

        Mr. Amarasiri aka mean IQ 12,
        /
        I quote.
        ________________
        Amarasiri on January 9, 2015
        /
        Jaya Jaya Jaya Maithree ..!

        https://www.youtube.com/watch?v=Bd8LM5AwN0g

        CANDIDATE’S NAME VOTES RECEIVED PERCENTAGE
        Maithripala Sirisena 6,217,162 51.28%
        Mahinda Rajapaksa 5,768,090 47.58%

        CANDIDATE’S NAME VOTES RECEIVED PERCENTAGE
        Maithripala Sirisena 6,217,162 51.28%
        Mahinda Rajapaksa 5,768,090 47.58%
        ____________
        End of quote.
        /
        Words speak for themselves.

        • 1
          0

          Pasqual, ohoma yang, you guys would have to face it sooner than later.

          Rajaakshes should be beheaded if we have to see it beyond. Hood winking and self glorifications cant lead this nation. Let alone, over 60 millions of the nationa are against ballige puthas.

          But as is the case in Pakistan, we too have majority of people that would continue eating THANAKOLA….. let allow Rajaakshes to abuse them, they would ever let their lovely ones as sacrifices.
          Now they make every effort to overshadow the SWISS incident, but we the real srilankens, sinhala blood wouuld join hand with the SWISS, when it goes to stand against human rights violations.

          As some good analysts report, the Swiss would not even bend their heads against any kind of super powers but be alert on HUMAN rights protection. So, we want that victimized families to be given REFUGE in Europe. We will fight for that, We in the same time want, Rajaakshe led groups be isolated in this world and let their supporters be sunk facing TRADE embargo or sanctions against the grass eaters dominated srilanka.

    • 4
      0

      POLITICAL MASTRUBATION of Rajapakshe family will ruin this nation.

      Just for the escape from investigations, they and their men misled the nation. Media fraudsters did the job well for them.

      Today we hear from that Barbari Monk, Ghanasara that it is fair to give general pardon to Kudu Duminda – that should be a deal with Rajaakshes.

      If Kudu Dumiya would be RELEased WHY not other men, that are in the same category of CRIMINALS be jailed ?

      Gotabaya will have to answer the questions not abusing the nation as had been his brother.

  • 13
    12

    Vampires against blood donation
    Typical. What else to expect?

    • 1
      0

      This comment was removed by a moderator because it didn’t abide by our Comment policy.

      For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

    • 18
      3

      Poor Man,
      Wrong analogy; the real vampire is the debt burden created by “white elephant vanity projects” of MaRa regime which has become the real vampire sucking the blood from the whole nation. No Gvt can escape from this huge problem of managing difficult task of keeping the cost of living under control and encouraging investments while paying down debts in time. WAW is correct to point out the risk of GoRa Gvt is taking. GoRa and the PM + FM, MaRa are not economists. Therefore, it apparent that they both are relying heavily on the advice from Cabraal & PBJ who themselves helped the previous regime to create the current mess. This time, the same failed team is “doubling down” on the same wrong bet!

      Cutting taxes certainly is one way to stimulate investments but SL does’t have a well established investment community exploit the benefit of such an incentive. Even in the US, Trump tax cuts created huge budget deficit and increase of debts. But, SL is not the US to withstand such an immediate imbalance.Besides, some of the lost tax revenues are coming back to the treasury in terms of tariff increases on imports.

      By the way, the irony is that people like MaRa, Vasu, Dinesh, Thissa Vitharana, WW, etc who (wrongly) accuse UNP for applying the so-called neo-liberal economic policies, relying on them in an excitement like having a “continuous orgasm”!

      • 0
        1

        Your comments are. admirable but. we are satisfied. with reduction on taxes from poor savings and monthly income…..we. as laymen must. satisfied with this peanuts……

        • 0
          0

          With the tax cuts the following had gone up in prices. Aerated water which is 99% water by Rs 20.00 per 1.5 lts bottle, earlier it cost Rs 220.00 for a 2 lts bottle. Sugar had gone up so has rice at the centres I do my purchasing.There are reports that B.Onions too had gone up. What is slightly stable are the perishable goods eg vegetables.

          Without all this why cannot the Govt bring down the price of arrack, especilally galArrack to about Rs 300.00 a 750 mls bottle. Forget going to nirvana,let us live this life in peace.

        • 0
          0

          W B S,
          May be you are correct. The best strategy for average consumer is to have fun till the party ends after the general election. I t is scary to think about Gvt debts due to be paid down in 2020. May be China has entered into secret pact with GoRa for some kind of concession on debt payment.

  • 13
    1

    The Department of Pensions has a caution:-
    “Widows Pension Registration has been Suspended”

    It appears that widows will have to prop up the economy.
    This is a “First” for any democracy.

  • 3
    26

    The west said that terrorism cannot be won militarily the Rajapaksa brothers did it they will definitely bring our country out of poverty.

    • 2
      1

      Reg,
      Battle won. War lost. What did Mohdi mean when he requested that 13th A be implemented.

  • 7
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.

    For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

    • 4
      0

      KASmaalam K.A. Sumanasekera

      It appears you are censoring your own typing however you do not have to worry too much about Gota’s Media Gestapo as they seem to harass/attack only those who do not abide by Gota’s self rules and glorify his war victory or carry his b***s.

      Here is something other media people are worried at:

      Sri Lankan journalists fear new media crackdownSeveral journalists, news outlets subjected to intimidation since new leader sworn in, press freedom advocates say
      https://www.ucanews.org/news/sri-lankan-journalists-fear-new-media-crackdown/86773

      • 0
        2

        Dear Native,

        CT dudes knows that Yahapalana supporters are not interested in Economics..

        I am not sure about this harassment..
        Ex UNP Heavy. Minister Dr Rajitha called that Press Briefing and gave the exact details of that terrible White Van Heist of that innocent Lady from Kelaniya who works hard in the Swiss Embassy in Colombo.

        The other Media Briefing which was arranged for the Lady to explain exactly how it happened was cancelled because the poor Lady couldn’t attend due to the injuries to the mouth and the throat..

        I don’t think this level of Transparency and Freedom of Expression were evident even during Dr Ranil’s Yahapalana Rule in Lankawe..

        • 2
          0

          KASmaalam K.A. Sumanasekera

          “Ex UNP Heavy. Minister Dr Rajitha called that Press Briefing and gave the exact details of that terrible White Van Heist of that innocent Lady from Kelaniya who works hard in the Swiss Embassy in Colombo.”

          Heist – a robbery. “a diamond heist”
          Heist – steal. “he heisted a Pontiac”

          Your white van operations are the ways and means to kidnap, forced to disappear, silence, perceived enemies, opponents, those who question accountability, champion human rights, war crimes, kleptocracy, nepotism, ……………………
          It is difficult for b***s carriers such as yourself to understand such inhuman activities.

          “The other Media Briefing which was arranged for the Lady to explain exactly how it happened was cancelled because the poor Lady couldn’t attend due to the injuries to the mouth and the throat..”

          Sisira’s goons must have sharpen their tools, maybe Single handed Kamal’s Ranavirus helped him.

          You should get a member of your local Saffron Brigade to tie you a noola.
          Or go get the Koneswaram Temple chief poosari to do a Abishekam/Poojas for you and your family to protect them from Gota’s goons in case they come after you due to mistaken identity.

          I have seen many Army Officers breaking/jumping the queue and getting poojas done as soon as they arrive, escorted by their foot soldiers.

          You better do it before the Kovil is being converted/transformed into a Buddhist Vihare and become a crematorium for dead members of saffron brigade.

          • 0
            0

            NV,
            Koneswaram Kovil is only for lower ranks.

            Honourable Politicians visit Thirupathy

            • 1
              0

              justice

              You maybe right its for Colonel and below.
              Gota will be not be banned from visiting Koneswaram Kovil.

              Fascists Saffron Brigades are bent on converting every kovil into a crematorium for their dead Saffron Brigade commanders.

  • 6
    3

    Legislation should be brought in for political parties to declare how they will finance various promises involving income and expenditure of the Govt., Both candidates made extravagant promises and as per the the article we see the folly of such promises. Already results are seen in the stock market indices.

  • 23
    1

    can’t we reduce our parliamentarians from 225 to 100 to save the money?Due to the tax cuts health and education and other services are going to be affected.Do we need 225 MP’s when we have PC’s too.

  • 21
    0

    rajapakshes must clean up the financial mess they created with the white elephants in hambantota.

    • 3
      1

      shanker,
      The very man who created these ‘white elephants’ is now Prime Minister.
      It is puzzling why he created them. No one in his right mind commits his country to a 99 year lease.

    • 0
      0

      With no knowledge but to become even more popular by hoodwinking the same grass eaters, rascals would not make it.
      But our people should also be punished for not having proper knowledge about ground realities.
      UNHRC session in 2020 WILL be a real threat to srilanka
      CW nations will see how Rajaakshes dogs destroyed the democracy in this country
      In Kaluthara Area a family of a journo is reported to have been assualted and the victims are hospitalized.
      Barbarians, though make big propaganda on their WALL ARTS… but people will no longer get it, what these rascals have been paving the way.

  • 9
    0

    the govt will never recover the revenue lost by increasing the number of taxpyers
    the loss iso great it will need to borrow to fund the huge deficit

    • 0
      0

      nalmen

      i agree with you.A very risky move,but i suppose desperate situations result in desperate measures.I believe that instead of all this the country has to be fast tracked into becoming a competitive country like singapore which is no 1 in competitiveness.That is the only solution for sri lanka which is currently ranked 84.Let alone singapore which for us is out of reach for now,if we at least bring it to the level of malaysia which is ranked 27th,we might survive and do well.

      • 0
        0

        Shankar, it can be fast tracked – but tell that to the politicians.There is no cut for them and the process zeroed.

  • 3
    0

    We suffer over the suffering it will not work to be debt and win.

  • 2
    1

    Tax cuts and Quantitative Eeasing(QE) are not new instruments. This will give the economy a short-term lift which in turn should instill confidence. Managing wastage is another challenge. Things are moving in the right direction – at least better than Sirisena/Ranil infighting and ill-crafted policies.

    Time will tell.

    • 1
      0

      That is not what happens. These are purely consumption related. Nothing the government has done instills confidence in investors. These stupid measures will only raise inflation, not production or confidence. Parliament is inactive for 2 months since November. This is another disaster. We have a PM who is scared of the parliament!

  • 8
    1

    A thorough and cogent analysis of how taxation reform will work (or not) in Sri Lanka. If policy-makers act with sincerity and reduce official consumption luxuries, then perhaps there is still hope.

  • 4
    1

    China must have cancelled debt.

    • 0
      0

      ramona

      china is restructuring ethiopia’s debt because they can’t pay.We also should do that.

      • 0
        0

        Can we tell the West to go to hell is left to be seen.

  • 1
    1

    Good talk. But Sinhala Buddhism will not relent. It would go as music played to deaf man.

    • 0
      0

      mallaurine
      do you dream of sinhala bhuddhism every night?nightmares?saffron robed devil?

  • 0
    0

    The writer far from that New Thinking of Global economy and its production chain of GVC?
    We are lagging behind that Nation wealth has to be Reasserts by new evaluation of properties and wealth has developed last 71 years .
    This is step has not that done yet by any previous govt. in power .This is urgent task addressed by aim of that will be served for the revitalization of National Economy. In reality ours national wealth has gone unprecedentedly, last 71 years , it has NOT Audits by domestically do it as quick as possible.
    1 Tax relief in essential that including direct and indirect tax of lower and middle income
    groups.
    2 Debt relief is key factor of release Rural economy peasants of 70% people are from villages. They are backbone of our society .
    3 Reduce Central Bank interest rate is undeniably an essential …..all sectors of Economic.
    4 All these factors will shifted new Economic Revolution. It will created new environment solid base for development…….We cannot blind followed World Bank and IMF rules ….,ours interest are different .

  • 2
    1

    Tax-cuts and other such moves are to create popular sympathy to meet the General Election in May/ April.
    The Govt: needs a 2/3 rd majority to repeal the 19th Amendment. With the infighting within the UNP THE SLPP may very well reach the numbers they need for this exercise. The sinhala hardliners will certainly be happy but this happiness would not last too long! JRJs 4/5ths majority in 1977 is a pointer.

    • 0
      0

      Where will the brigae with the ENEMA SYRINGE enema syringe stand.

  • 1
    2

    Stimulus can not backfire because Sri lanka began to decellerate the growth in 2013, in 2018% it was zero. This year and next year it is in a depression and is supposed to contract the economy. Evidence is Businesses are closing down. People, including war heroes, say their pockets are empty. So, need tax cuts to stimulate the growth. I say, RS 250,000 limit is too high and where I am living it is 72,000 before the taxes are higher. In the USA it is 250,000. Sri Lanka doe snot have a Tax that discourages Imports.

  • 0
    0

    Dr Mobius , the boss of Mobius Capital Partners was with Dr Cabral in Colombo this week.

    That is a pretty good sign.
    It is not that Dr Mobius is going to pump in his shareholders hard earned Dosh ito Develop our Nation.
    But it will give confidence to help strengthen our Colombo Stock exchange , which hasn’t seen much good news although Dr Ranil came with all the Bells and Whistles to make us to be like Singaporeans.

    Any way if Dr Mobius decides to put in a few Bob in the Top 20 of the CSX List. it will boost the share price of those Companies.
    And put the Top Executives also under the pump which will be good for Yahapalanistas who punt on Shares..

    I might also pick 6 or 7 with wide diversification to just enjoy the ride and also help the Prez Nandasena to develop the Motherland .

    Mally and Native . this is a good opportunity to get in at the ground level..

    • 1
      0

      KASmaalam K.A. Sumanasekera

      “Dr Mobius , the boss of Mobius Capital Partners was with Dr Cabral in Colombo this week.

      That is a pretty good sign.”

      Mobius Capital Partners is a markets asset manager. They need your money and assets in order to bankrupt this island.

      The clan needs them more than the country in order to invest their ill gotten wealth in offshore companies and plan for the next 5 or so years investing its unearned income.

      • 0
        0

        Dear Native,

        Please don’t get offended.. You have no idea about International Investment Fund Managers and their Modus Operandi….

        Dr Mobius is a specialist in identifying Emerging Markets
        Get in their at the ground level.
        And Invest in the Assets which they have researched and found to be the Winners..
        -.
        Dr Mobius’s timing of his visit to Srilanka is perfect.
        It is not only with the Inauguration of Nandasena but also the opening of the new Port City with additional 270 Acres of the most Prime Land on the shores of the Indian Ocean.

        They say in New York that the Smart Money always gets it right..

        Dr Mobius identifying the Real Estate and Financial Services as his preferred assets to invest is a good sign ..

        Shangrila Apartments with only 2 Bed Rooms were fetching I Million USD upwards .
        That was before Dr Ranil’s mates put the spanner in the works by sending suicide Bombers Zaharan and Ibrahims to Catholic Church.

        Now that the Security of the nation is assured with the right people in the right places Dr Mobius and his TEAM know that their Investments will be safe for at least for the next 5 years.

        If Dr Mobius buys even 20 Perches in the new China Bay with the Colombo 1 Post Code . it will be worth 100 Mil USD just for the Land.
        in a few years..

        I did the maths based on an ad in Singapore Times, where the Real Estate list properties with just 2 Bedrooms in the 11th Floor for 3 Million S$..
        And no Ocean in sight let alone strolling on the Beach.

        Just imagine how many 2 Bedders they can build on 20 Perches in the new China Bay,in Colombo 1 with mooring facilities for the Yatchs….

        The new Rich in your Ancestral Land will be the first to grab the lower end stock.

        • 1
          0

          KASmaalam K.A. Sumanasekera

          I didn’t really know Mobius Capital Partners have their agents of influence in Sri Lanka, perhaps you are part of a sleeper cell. After all you are another closet capitalist b(p)rick in the Chinese wall. Like the present day Chinese you do not give two hoots about the very poor inhabitants of this island.

          Being rich is not a crime, however being a golf playing champaign is the problem. Go invest in Mobius Capital Partners, please stop talking about the downtrodden people of this island.

          By the way where can one see Awakened One’s frugal lifestyle?
          Do you think Mobius Capital Partners could employ at least 30,000 of the 40,000 idling members of the saffron brigade? It appears many in this forum and elsewhere categorically state the Mahasangha (like your brethren VP) knowledgeable in all aspects of economics, foreign affairs, politics, constitution, ……………. can you not get them places on their Board of Directors.

  • 2
    0

    Economy in Sri Lanka is bad as ever. You can’t improve the economy by increasing taxes. By deceasing taxes will help to create more jobs and reduce prices of goods and services. This will increase buying power. Foreigners will invest in SL if you low tax. Same time govt will ban the importation of certain types crops which will help the farmers. At the end if govt have a proper plan, tax cuts will help the economy.

    • 1
      0

      charles

      “By deceasing taxes will help to create more jobs and reduce prices of goods and services. “

      Why?

      “This will increase buying power.”

      What will happen to rampant inflation?
      How would you balance the Budget?

      “Foreigners will invest in SL if you low tax.”

      Only if the country is stable, void of corruption, nepotism and comply with rule of law, ……… How do you propose to keep the country riots, 10-30% free, ……

      “Same time govt will ban the importation of certain types crops which will help the farmers. “

      You want a captive market where prices will shoot up, …… shortage, leading to starvation and political instability. Well this was tried in the early 1970s and the Weeping Widow and he merry men failed miserably.

      Please note I am not an economist either.

  • 0
    0

    same idiotic economics. Tax cuts do stimulate the economy. Just ask Trump.

    • 0
      0

      A.P go out check the prices of essentials since the tax cut.You must be in a nut asylem towrite this.

  • 0
    0

    When all the developed countries were going bankrupt, Japan did not go so. Japanese people went against the govt advice and kept saving. The result even though the Japan’s growth rate became Zero, People had money. So, the govt was saved and they maintain ZERO% Interest rates. Sri Lankans earlier had a habit of collecting Piggy Banks. Where I am living, now allows TAX FREE SAVINGS ACCOUNTS. GOVT SHPULD PROMOTE SAVINGS INSTEAD OF BUYING CARS. tHREE WHEELER, AND sCOOTERS OR BICYCLES SHOULD BE PROMOTED as the FAMILY or PERSONAL VEHICLES, INSTEAD OF CARS..

  • 0
    0

    Can any tax guru kindly clarify the following;

    1. Is the 25% rent income relief (repairs etc) now abolished?
    2. What is the status on QUALIFYING PAYMENTS?
    3. How will one apply TAX FREE ALLOWANCES (Rs 500k) for the first nine months and (Rs 3 Mn) for the last quarter. Does a tax payer have to PRO-RATE the amounts for 9 months and the last quarter?

  • 1
    0

    With tax cuts or otherwise lets see whether Gotaeconomics including Cabal team’s could save the economy. World is currently seeing recessionary pressure with Singapore, India, China and latest Bangladesh experiencing declining growth.

  • 0
    0

    George Zorros was also a investment guru. What is specific about the new one. Last time, it did not work because of the Great Bank robbery aka Bond Scam.

  • 0
    0

    GR and MR moving New height of Economy that cater for sustsnsbility development path.
    The school of thought of by Wijewawarada is Neo-liberalism. It has connected Old world Capital market had been undermined by Nation wealth creation of development has an opposed progress of Silk Road new venture of political-economy shape of development.
    He(writer) look at currency manipulated of readjustments of economy . Hence (his)Monetary policies are bias of set policies guided by IMF and World Bank diagnoses of that treatment for our development ….are outdated.
    Capital market has shifted to Asian region, in fact no longer dominated Capital market by USA ;it has lost large scale investments in around the world by its capital domination. We have to study these factors into account by ourselves.
    In most version of higher development depend on self-reinforcement came from an interaction between economic of scale at the level of the individual nations producer and the size of the market .
    An Undoubeatly China , Indian, Iran ,Japan and south Korea are economic giants of Asian countries

  • 0
    0

    Many of Sri Lankan economists are not independent thinkers. They are not ready to implement a new development approach which is based on sustainable development principles. The writer again discuss about the old type Neo-classical growth model which is not the appropriate development path for Sri Lanka. At least Since 1977, Sri Lanka has been following this inappropriate Neo-liberal growth model. I think that the impact of these policies on Sri Lankan debt crisis, BOP problem, poverty and inflation etc are extremely negative. Please refer Central Bank Annual reports. Thus, at the short-run we would need a fiscal stimulation as done by the current government. Development should be for the people not for the World Bank or IMF. Our policy makers should have backbone to object policies proposed by foreign experts which are not appropriate for our country. In the long-run, we would need a radical change in our economic policy which is based on sustainable development growth model. Those old economic theories do not function well in developing countries like SRI Lanka because of various structural bottle necks in the economy. Thus, we would promote our own development model which focus domestic human physical and natural resources.

  • 0
    1

    Tax cut is not unconventional. It stimulates the economy in great extent (Keynesian economics). We would need high level expansion of our economic activities in the short run. Due to the Central Bank robbery and other deals, our foreign exchange rate has been continuously deteriorating. The proposed tax reduction provides a room for a considerable economic expansion. In the long-run, we would need a radical change in our economic policies which are currently purely based on old fashioned Neo-Classical growth model. Even though the writer worship the World Bank and IMF, so called developed countries do not follow these liberalized policies when such policies hurt their economies. Their current approach is sustainable economic development model which integrates growth equity, and environmental sustainability. We would need young policy makers who can creatively construct our economic policy framework towards such a development path. If we want to be a strong economy in the world, we would need economists who has skills and knowledge to develop a creative economic policy framework for Sri Lanka. This can not be done using text book economics and some of the crazy advice given by foreign experts who do know nothing about Sri Lankan political economic context and its historical development path.

Leave A Comment

Comments should not exceed 300 words. Embedding external links and writing in capital letters are discouraged. Commenting is automatically shut off on articles after 10 days and approval may take up to 24 hours. Please read our Comments Policy for further details. Your email address will not be published.