Sri Lankan government increases VAT and other taxes in a new round of social attacks

On Tuesday, the Sri Lankan government sharply increased a range of taxes, driving up the cost of hundreds of items. These hikes will worsen existing inflation rates and push many more people into starvation. The already unbearable cost of essential food items has forced many workers and the poor to reduce the quality and quantity of basic foods, skipping at least one meal a day.

Ranil Wickremesinghe [Source: United National Party Facebook]

The cabinet-approved proposals presented by Prime Minister Ranil Wickremesinghe, who is also the finance minister, increases the Value Added Tax (VAT), income taxes and imposes surcharges on certain goods.

The prime minister’s office estimates that these increases will add 300 billion rupees ($US836 million) annually to the dried-up state coffers. Half of the amount is expected to come from the increase in VAT.

The new measures include:

* An immediate increase in VAT to 12 percent, up from 8 percent, and applicable to almost all products and services. The current VAT annual turnover threshold will be reduced from 300 billion rupees to 120 million rupees in October 2022, drastically hitting small businesses.

* The current levy on telecom services was immediately increased from 11.25 percent to 15 percent, driving up the cost of all telecommunications.

* The imposition of a 5 percent withholding tax on interest payments from savings, including pensioners’ deposits. Retirees over 60 years of age are exempted, but only up to 1.5 million rupees of their savings.

* The current 3 million rupees annual income threshold for Personal Income Tax relief will be slashed to just 1.8 million rupees, which means that tens of thousands more workers will have to pay tax.

* An increase in the corporate income tax rate from 24 percent to 30 percent, in line with other countries in South Asia, along with a 1 percent rise in the concessionary corporate tax applicable to some sectors, from 14 to 15 percent.

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