A review of the revenue proposals | Sunday Observer

A review of the revenue proposals

Pic: Courtesy balance.com
Pic: Courtesy balance.com

This article deals with the important aspects of the Budget speech delivered by the Minister of Finance last week. It is important to understand that this Budget has been presented not, before the commencement of the relevant fiscal year, but after two months from such commencement.

The minister has made the following revenue proposals for 2019 - (See table 1)

It is important to note that out of gross revenue amounting to Rs. 156,000 mn. gross revenue, nearly Rs. 50,000 mn. should come from the import/local assembling of motor vehicles. In the current situation of very high taxation of motor vehicles the quantity of imports may be further reduced and the expected revenue may not be achieved.

Another Rs. 60,000 mn. should come from cigarettes, Liquor and other selected goods, where the taxation may be some times considered as prohibitive.

The Minister should have selected dependable revenue base consisting of general consumption goods and services where the VAT and NBT may be relevant. Expanding the VAT and NBT bases would have been a prudent choice.

The evasive target of Direct/Indirect tax ratio which is reasonable for our country may not be achieved in the near future due to these fantastic increases in indirect taxes. Some time back this ration was ‘direct 20% and indirect 80%’. But now it has further deteriorated even though there was an increase in income tax revenue due to this unbeatable increase in indirect taxes. Unfortunately, now we will have to settle for ‘direct 18% and indirect 82%’.

(See table 2)

A large number of other expenditure proposals has also been made. Out of the above, certain proposals may be timely and certain others may have been delayed. For example, Housing in the North and East was proposed since 2015.

A glass of milk for school children may be very important for rural children. Sanitary facilities in rural houses, bus terminal and railway stations and a system to maintain them is a basic need of a civilized society. It is very necessary to improve the living standards of people living in war-affected areas of the North and East and in this connection the proposed industrial zones, Housing schemes and Township Development etc. may be very necessary and properly and timely executed.

Salary increase for public servants -

The proposed interim allowance will be paid from July, 2019 (ie for six months) at Rs. 2,500 p.m. The recommendations of new Salaries Committee may be implemented but it has not been given any time-line. Further no Budgetary provision has been made for this proposed salary revisions.

Rectification of pension anomalies -

According to the Budget speech the relevant anomalies may be rectified during the course of this year As a result the expected increase in pension may be from Rs. 1600/- to Rs. 12,000 p.m. depending on the position held at the time of retirement, with at least 25 years service.

Specific Tax Proposals -

Income Tax -

Exemptions

Govt. Bonds - N/R. Persons - Total earnings exempted

Govt. Bonds including Sri Lanka Development Bonds - Resident Person - Interest exempted

Foreign currency a/cs. (NRFC, RFC etc) - Interest exemption for 05 years. Child’s income - interest on deposits - up to Rs. 5,000/- p.m. exempted. (Now no aggregation !)

Interest paid to a person outside S.L. (?) on loans granted to a person in S.L. other than a NR company to holding/subsidiary in S.L. - exempted.

WHTT

Royalty - not exceeding Rs. 50,000/- subject to Rs. 500,000 p. year - in relation to a resident individual - no WHT. The annual cap will reduce the monthly amount.

Rent - same situation.

Extension of enhanced Depreciation - Existing businesses also can claim enhanced depreciation on new investments. Restriction of concessionary rate - 14% - Any company qualified for 14% on the basis of predominant activities, the lower rate can be applied only to the income from the qualified activities and any other income will be liable @ 28%

Value added Tax (VAT) -

 

BOI companies - local sale of garments - Rs. 100 per piece.

Condominium Housing - Sale will be liable from 01.04.2019 if no sales agreement before 01.04.2019.

Nation Building Tax (NBT)

Import of unprocessed gems and export after processing - No NBT

Manufacture of cigarettes - liable.

Main construction contractor - No NBT. NBT @ 3.5% for credit / debit cards foreign payments, tour operators etc.

Economic Service Charge (ESC) -

Rate for exports - reduced to 0.25%

Prescribed capital goods - imports - No ESC

- The writer is a tax and investment consultant 

 

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