Financial levy on transactions : no burden on customers | Sunday Observer

Financial levy on transactions : no burden on customers

State Minister of Finance, Eran Wickremeratne clarified that the Special Levy for debt repayment is proposed to be imposed on all transactions including cash and non-cash, such as electronic payments, from all financial institutions.

Under the Budget 2018 proposal, the government plans to generate Rs. 20 billion in 2018 through the three-year temporary levy which has been designed to meet Sri Lanka’s debt repayments amounting to almost Rs. 7 trillion.

“This has to be totally borne by the financial institutions and won’t be allowed to be passed on to customers. We are presently in discussions to see how best we could implement this,” Wickremeratne told the Sunday Observer on the sidelines of a post-Budget forum. Meanwhile, Deputy Secretary to the Treasury, S. R. Attygalle yesterday said the proposal will be applied on the total annual financial transactions, including inter-bank which approximates to over Rs. 100 trillion a year. The new levy is proposed to be charged at the rate of 20 cents per Rs. 1,000 (.02%) on the total transaction with effect from 1st April 2018.

“For taxation purposes, this levy will however be a deductible expense and hence the burden on the institutions is low,” Attygalle pointed out.

Deductible expenses are those that can be subtracted from a company’s income before it is subject to taxation. According to the Central Bank’s 2016 Annual Report, total profit after tax of the banking sector in 2016 increased by nearly 20% to Rs. 116 billion compared to 2015.

It has to be noted that although the financial levy proposal was included last year’s Budget proposal, it was, however, not implemented. By the end of 2016, the banking sector consisted of 25 licensed commercial banks (LCBs) and seven licensed specialised banks (LSBs).

It is, however, not clear whether the financial institutions will include both banking as well as non-banking institutions which include Licensed Finance Companies and Specialised Leasing Companies, until the Act is drafted, banking sector analysts said.

“…the next 3 years will be crucial with debt repayments amounting to almost Rs. 7,000 billion.

This includes the repayment of international sovereign bonds which will mature every year amounting to almost Rs. 600 billion where bunching is a severe strain on Government finances. In 2018 alone, the debt repayment amounts to Rs. 1,970 billion,” Finance Minister, Mangala Samaraweera said in the Budget 2018 speech.

Attempts to reach the Chairman of the Banks Association’, Renuka Fernando for a comment on the banking sector’s perspective on the proposal proved futile as she was not available until the time this edition went into print.