What a strange budget. Broadly they are taxing the rich and giving stuff away to the poor. There are a lot of one-time taxes (wut?) on big companies, taxes on people with big houses, vehicle importers, etc. At the same time, prices of a lot of consumer goods are reduced, salaries are increased for government workers, hand tractors will be given away, seniors/veterans/mothers are given benefits, etc.
This is the most populist budget I could imagine, and it’s coming from the UNP. For reference, this would be like the Republicans taxing oil companies and going crazy over health care in 10 years.
This interim budget is also different from Mahinda’s budgets in that he gave a lot of stuff away without paying for it at all. This is the first budget I’ve seen where there are significant steps to gain revenue. Those steps, however, are pretty intense and some are on such short notice that it’s not really good for business.
I’m categorizing the stuff reported in the Daily Mirror’s liveblog which, however, is full of typos and I think some number errors. Tell me if you can find a better comprehensive source. The full interim budget is available via the Treasury Government website (PDF).
Taxing The Rich
Previous budgets (see PDF of Mahinda’s 2015 budget) have been full of the same populist giveaways, but they haven’t done anything painful to actually, you know, balance the budget. Mahinda would usually increase taxes on cigarettes, tobacco and gambling (ie, stuff that no one is going to defend). This budget actually hits some major industries.
- Supergain tax – any company of which the profit exceeded Rs. 2000 million – tax amount worth 25% off its profit will be charged
- Vehicle assembly plants have neglected their income tax payments during the previous regime. Rs. 12,0000 million revenue expected through prompt payments [is this 120 billion? I feel like the Daily Mirror is messing up some of its numbers]
- Casino business-owners to pay Rs: 1000 million as a tax – first payment to be made before April.
- One time tax of Rs. 250 million to be paid by telecommunication providers
- One time tax of Rs. 250 million to be paid by mobile phone operators
- Rs. 1000 million tax imposed on television stations dedicated to sports [CSN, basically,
but I think MTV Sports would also get hit, I’m told this applies only for channels that haven’t paid tax, so it’s basically just directed at the channel run by Mahinda’s sons] - Rs. 1.5 million permit fee will be charged from vehicle importers (irrelevant of whether the imported vehicles are brand new/reconditioned).
- Mansion tax – Rs. 1 million per annum will be charged for houses of which the value is estimated at Rs. 100 million or exceeds 5000 sqft
So, to summarize, big business is going to pay. They have, however, excluded people in the construction and consumer goods industries. It seems to be telecom, TV, vehicles and casinos. Telecom and TV are the ones I don’t get. Of course, no one making profits of over 2 billion will get away under the Supergain Tax. Note that this budget taxes businesses and not wealthy individuals (beyond the mansions thing). This is because Sri Lankan income tax collection is really bad.
Giving To The Poor
There are honestly too many give-aways to list. Whereas they’re taking billions at a time from big companies they’re giving it away a few rupees here and there. But they are giving it away to the masses.
- Salaries of state sector servants incresed by Rs. 10,000 – Rs. 5000 will be given in February/ remaining Rs. 5000 in June- Thereby state sector employees’ salaries increased by 47%
- Request made for private sector employers to increase the salaries of private sector employees Rs. 2500
- Reviewing of pensions – Increase of Rs. 1000 with effect from April.
- Senior citizens with Rs. 1 million in their bank accounts to be given 15% interest rate.
- An allowance of Rs. 20,000 to be paid for expectant mothers
- 50% of the loan amounts borrowed by farmers to be waived off.
- Hand tractors will be given away at concessionary rates / fertilizer concession will be continued + the quality will be increased.
- A sum of Rs. 2000 million to be allocated to the fund reserved for kidney patients (called CKDU patients in the budget).
- 13 essential goods price reduction by removal of taxes – with effect from midnight (sugar, milk powder, sustagen, flour, bread, green gram, sprats, canned fish, coriander, Maldive fish, chili powder).
- School van fees reduced by 5%
- Kerosene reduced by another Rs. 6 per liter
- 12.5kg gas cylinder price reduced up to Rs. 1596 (Rs. 300 reduction)
- Gold jewellery pawned to banks – that don’t exceed Rs. 200,000 – interest will be waived off.
- Vehicle taxes reduction 15% for vehicles with engines below 1000 CC.
- Cement prices to be reduced by Rs. 99
- Marriage registration fee to be reduced up to Rs. 1000 from Rs. 5000.
- The government has waived off the 25% tax paid by customers when reloading phones.
- Special facilities for disabled war heroes – special loan scheme named Viru Diriya to be introduced in state banks/ maximum borrowing Rs. 500,000.
- Mahapola scholarship fee to be increased upto Rs. 5000
- Rs. 250 monthly allowance to be paid to pre-school teachers.
- Dahami Diriya for Sunday school teachers – a monthly sum of Rs. 200 to be paid.
- Every citizen to have a bank account – can be opened in commercial banks with an initial deposit of Rs. 250.
- Public transportation costs to reduce by 50% for senior citizens.
For the full list please visit the Daily Mirror. I think you get the jist of it.
I suppose it’s what they’ve campaigned on – these buggers have been getting fat while the cost of living has been increasing on you (being the average voters). So they’re taxing the fat buggers and reducing the cost of living.
That said, I don’t think they’re necessarily taxing the right fat buggers, and ‘one-time taxes’ introduces a huge amount of uncertainty into any business venture.
Generally, however, I don’t think too many people are going to be mad at casinos and huge companies being taxed. This is the most populist budget that I’ve ever seen, but it is at least getting money in rather than just giving it away. Seems like it would be appealing to average voters. Which I think, more than anything, is the point.
very good budget and what a relief from the ‘game Baiyya’ who was robing the country left/right and center/
With this type of budget, How will Sri Lanka expect foreign investments? This budget doesn’t seem to be friendly to investors neither free-market.
I think if they’re going to introduce this budget for long term, the most of local investors will flee the country. Although Sri Lanka’s foreign reserve will be wiped off by 10 billion dollars during the first term of Maithri. They have no idea what are they doing.
Mansion tax of 1 mn per year for houses over 5000 sq. ft. seems extreme, unless it’s a one time payment for new constructions. Also, what’s to stop people from partitioning off sections to look like separate units, like they already do to avoid large electricity bills?
Mansion Tax : 5000 sqft means 18 perches, I guess it should be 50000 sqft.
What exactly does this one-time-tax means? Is it one-time for the year or one-time for the whole life time of the business?
One the other hand 250 million from telcos and mobile service providers does not seems to much considering their net profit.
1000 Million (>9 million USD) from casino operators would not stop the two mega casinos which are coming up (no surprise there).
If you can afford to build a 5000 sq ft house with the current construction costs, you can jolly well afford to pay a million a year as tax.
I presume this tax will be charged only for houses to be built , otherwise it sounds really silly as i know of huge houses down Horton place where the owners can barely maintain it.
this one time payment scheme will vanish after the next election if UNP wins. They will probably cut the taxes on big companies and would give tax free period for new investments
The one-off strange taxes are a worry.
Some will affect cronies (eg Casino taxes). Just a thought, some cronies may find themselves actually better off. Previously they had to pay vast sums at regular intervals to the ruling clan. Now they pay tax but no longer need to pay the rulers.
Indi seems does not seem to like the budget but seems to find it hard to critisise it too . The poor had to be given relief and some money had to be found.At very short notice this is pretty smart.
i don’t know how big 5000 square feet is but a lot of old people with old ‘walauwwa’ type big house are not going to be able to pay off the mansion tax. so i hope it’s just for new constructions.
supergain tax seems like a mistake. not encouraging for business at all.
Some good things but female headed house holds have been forgotten – not relief for them. Also the construction industry and the tourist industry seem to be underlapped for revenue potential – .i.e tax. Also they should think about a way to increase the number of tax payers in the country – make the system simple and streamline it. Of course if citizens were sure their tax rupees really do work and not get used as fuel for helicopters, more people might be willing to pay taxes…..
Regarding the supergain tax – assuming the numbers are correct, this is a 25% tax on annual *profits* exceeding ~$2 Billion. Profits of this level are almost unheard of even in the western world, outside of the biggest of the global corporations.
So this doesn’t seem too far fetched – if anything, companies can use it as incentive to reinvest in their business by updating their technologies, hiring employees (or pay them better salaries – look at what the average worker even in some of the bigger companies in Colombo makes, compared to the profits the companies are making), etc. to reduce their bottom line to avoid the tax.
If the plan is to vitalize the economy by getting regular people jobs, encourage long term expansion, etc. this isn’t so bad a plan. Of course, if you’re a shareholder sitting at home hoping for infinite stock market gains via record profit over record profit without much actual reinvestment or sharing of these profits amongst the working class, this would certainly be cause for concern – perhaps your money would be better invested elsewhere outside of the few behemoths who’ve run away with the market.
hi e30s2k it is not $2 billion, it is Rs 2 billion. which is like 15.2 million US dollars.
Rs. 1 million tax on houses exceeding Rs. 100 million is 1% property tax. Property taxes are generally used to fund the schools and infrastructure of that locale. If you can afford a Rs. 100 million house, be thankful the tax is not more than 1%.
As for CSN, if they havent paid taxes (did they even pay for the license?) why are people surprised by a massive tax bill?
The supertax on corporate earnings is also pretty reasonable. Its the same tax rate one pays when at a luxury hotel.
i had a look at an area tool on google maps, 5000 square feet is rather huge, doesn’t look like any old houses fit the bill. it will apply to palatial mansions only.
Nuwan, thanks – you’re right, I wasn’t reading very carefully. Principle still stands though, I suppose given Sri Lanka’s economy and population breakdown. A 25% tax rate on the highest portion of earnings for the few entities that would qualify still isn’t an unheard of rate – and the options available to avoid the tax still wouldn’t be half bad for the country as a whole.
Mansion tax is not fair at all.should exceed the square feet for more than 7500 at least.imposing a tax on existing houses is not fair at all since the houses are built on the money of the ownees nit from the government money.this is realy a bad decision.25% tax on entities is discoueaging the companies to earn profits
It’s questionable whether the government is covering the expenditure with taxes. About 150 billion is needed just for this and another 100 billion for the rest of Rs 5000 increase that will be given on July. I don’t see government collecting Rs 150 billion from these taxes and we have to remember that most of these taxes are one time while giveaways are not. How are they going to finance this next year? Looks like a desperate government trying to cling on to power.
After the 100 day election the government should go for a direct tax. 10% on income for people who earn over 60k per month (including government servants). Otherwise this giveaway is not sustainable and economy built by Mahinda using the war victory as a shield will come tumbling down.
AS a goverment they should pay attension to the private sector employees as well.becuz most of the government servants has less work where as in some private sector people are working as slaves for a less salary and doing the work of 02, 03 people by a single person
I am favor of this Budget as certain prices were obscure in the past. However i feel the present government does not favor our sri lankan business owners. Especially in the export/import department. For instance the EU has currently banned imports of fish from sri lanka and our local markets are being flooded with fish which danger our local fisherman as prices go down. But the the current fisheries minister has reduced can imports and imports from maldives. Due to that many sri lankan fisheries business will fall and employment will fall in those sectors as it willl be too competitive to go head on with other brands for a lesser price. I feel this government needs balance. Not only keep the people happy but also business owners. Whatever said and done it is much better than the previous administration where only one family gained. But now that we have a new and better administration i wish it the very best but to also think of the sri lankan business as they provide employment and stability. ithink that the import prices should go higher on cans so that our local factories can use our own sri lankan fish to can rather than importing cheap unhealthy fish from china/taiwan and other countries when sr lanka has the best fish. I hope the daily mirror writes about this fact so the word will spread and so that business and people can all prosper.The reason i used our fisheries department is because we have over a million fisherman in our county and i think the new fisheries minister thinks just by bringing prices down he will gain more support. true the people will be grateful but over time more fisherman will have to look for other jobs because out local factories wont purchase our fish because it will be too expensive. Anyway this is just my opinion i agree that certain prices need to come down but not the ones that will benifit our country and people.
If certain companies have been committing tax fraud they should be investigated under the inland revenue act. What has happened here is economic assassination abusing the powers of the legislature and the complete opposite of yaha palanaya and democracy.
Also, the 25% tax is on top of the 33% corporate tax. A total of 58%. That’s absurd. Companies like John keells invest their profits and create new jobs, expand the economy etc.. All that will now be arrested.
Also public investments have been cut by 33% and almost 1.5 bn usd chopped off from infrastructure investments. That money is going to subsidise consumption which yields zero long term economic benefits.
@Anderson bro, the fish problem was there for years. http://ec.europa.eu/news/agriculture/141015_en.htm
I still don’t get “one-time” taxes. Can the government charge another “one-time” tax with next years budget?
How many Sri Lankan companies making more than Rs 2 billion profit? Few banks and insurance companies they can’t be tax again since they pay different type of tax there are about few hundred properties worth more Rs 100 million which are penthouse in supper luxury apartments
Seems very difficult to collect the money needed and could foresee lots of companies closing
for the Financial Year 13/14 29 listed companies made profits in excess of 2000 million LKR. With heavyweights JKH, Com Bank, CTC earning between 9-13bn bottom line.
29 companies is without considering the private/unlisted companies
Source LMD 100 – http://lmd.lk/lmd-100/
For me, it sounds like, one off tax is really targeting some companies who were closed to MR. (CSN, car assembly (Micro?) etc.) I am not sure whether small telecom operators like Hutch can stand the 250m tax, but others can (Most of them have couple of millions of users, and they have multiple connections too). It also could be the revenge for blocking Maithri’s press conference in the name of technical fault. I do not know who has earned more than 2 billion as profit in 2014, but I am sure some companies should have done this; (the central bank/treasury used to get involved in getting the data & preparing the budget; otherwise it will be there in the budget.) it may be because of some tax concessions, or “legal but underhand” deals happened before.
According to the interpretation, Mansion tax is not for inherited property. (5000 sqft equals to 20 large rooms of the size of 12.5 ft x 20 ft each… Practically you will not have this number of rooms as you need verandas, kitchen, living area toilets etc.)
I am happy of what I am getting out of this. But if my suspicions are correct, we need to travel some more distance to reach good governance.
The tax on hybrid vehicles has gone up from 57.7% to 92% which translates to around 1 million in increased taxes. So those who had already ordered the import of hybrids directly from Japan for our own personal use are left in a pretty bad situation.
We feel like Robin Hood had targeted the wrong wagon in our case, as we are neither the RICH nor the DIRTY!
We are petitioning the government for a tax exemption for hybrids that were ordered before 29th for individual use.
Anyone in the same boat as us please join-us at https://www.facebook.com/lk.hybrid.tax.increase.exemption
Well I was wrong. Two mega casinos has pulled the plug (one want come and other will be implemented as a mix development). Five existing casinos will cut down to two. Which means the 5 billion the government was hoping to obtain from them would go down to 2 billion.