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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Sri Lanka Tax cut is harmful-World Bank

Sri Lanka Tax cut is harmful-World Bank

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1Sri Lanka Tax cut is harmful-World Bank Empty Sri Lanka Tax cut is harmful-World Bank Thu Dec 05, 2019 12:02 pm

Teller

Teller
Moderator
Moderator
Sri Lanka’s economy could be destabilized if a fiscal stimulus in the form of a tax cuts turns out to be unsustainable, the World Bank Chief Economist for South Asia, Hans Timmer said.

“In Sri Lanka, going forward, there’s objectively a reason for fiscal stimulus but there’s not enough space to actually do it,” Timmer said, speaking at a public lecture organized by the Central Bank of Sri Lanka on the effects of slowing global growth in South Asia.

“Then you have to be very careful to balance that. Because if you over-stimulate when you don’t have the room, instead of stabilizing economy, you could destabilize the economy,” he said.

Sri Lanka’s new cabinet under President Gotabaya Rajapaksa has announced a series of tax cuts, as economic growth fell to 1.6 percent in the second quarter of 2018, in the wake of currency collapse in 2018, triggered by liquidity injections despite tight fiscal policy.

The 2018 currency collapse came on top of a 2015/2016 currency collapse, triggered by liquidity injections by the central bank as the budget deficit deteriorated.

You may also read:

Sri Lanka to have framework to stop ‘stimulus’ leading to inflation, BOP pressure

Sri Lanka needs monetary discipline to avoid further downgrades: Bellwether

Sri Lanka budget deficit wider in 2019 as monetary instability hits taxes

Timmer said if countries want to solve structural problems which impede growth, it is better to focus on monetary stimulus while such problems are addressed, and if there is only a temporary slowdown, fiscal stimulus is preferred.

With falling revenues and slower than expected growth, Sri Lanka’s 2019 budget deficit is already estimated to have widened to 7 percent of gross domestic product.

With little fiscal space, countries like Sri Lanka will find it difficult to spur growth sustainably with fiscal stimulus, he said.

“You need to build confidence among investors, focus on sources of potential high growth and focus on areas of opportunities for exports, but for some reason, these opportunities have not been taken,” Timmer said.

He said Sri Lanka needed to tap into underutilized resources, such as the informal sector, women, and create the right policies to allow investors to harness these labour pools and increase confidence in the market.

“So, instead of spending as a government to create domestic demand, you create the right policies so that people will come and invest.”

He said countries in South Asia have common structural problems which have to be addressed, such as protectionism, crony capitalism, weak regional integration and low female labour force participation.

Timmer also said South Asian countries have tended to run Keynesian-heavy policies throughout economic cycles, stimulating through both busts and booms.

“It’s true for every country in South Asia. In the past, they ran mostly cyclical policies, they don’t build buffers.”

“I hope countries learned the lesson that it’s good to run counter-cyclical policies in good times too to build up reserves,” he said. (Colombo/Dec04/2019)

Teller

Teller
Moderator
Moderator
This is the reason , i recently downgraded so many stocks. Experience and matured investors this movement look as a negative sentiment.


_________________




Teller said is said..

NANDANA2012


Manager - Equity Analytics
Manager - Equity Analytics
When coupled with many other measures taken by Govt, including appointing right people to SOE, Cut in Govt spending, reduce wastage, increased security, increased tourism, more production. more exports. more local induatrial activity. control in corruption (to some extent)  - World Bank will be proved wrong soon. Remember we have a person Leading the country who have proved many times he can deliver impossible targets. JUST WAIT 2/3 QUARTERS AND LETS DISCUSS THIS THREAD AGAIN THEN...Theories can be proved wrong if u are strong...

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Sri Lanka Tax cut is harmful-World Bank C04b9c10

Arrowrisk

Arrowrisk
Manager - Equity Analytics
Manager - Equity Analytics
Failure by the new Government to remove tax on dividends despite pre-election promise of scrapping WHT has irked investors. 

In the stimulus package announced last week by the Cabinet, only interest income up to Rs. 250,000 per month was exempted from the Withholding Tax (WHT), with effect from 1 January 2020. However prior to the election, presidential aspirant announced WHT along with Economic Service Charge (ESC) will be scrapped. Only ESC of 0.5% has been proposed to be done away with. The effective date of this amendment is yet to be announced.

The original announcement boosted investor and shareholder sentiment but failure last week to fulfil the pledge wholly is being viewed as a setback. 

“Continuity of 14% WHT on dividend is a total deterrent for investors,” analysts said, adding that the rate itself was high.

The WHT on dividend was introduced as a revenue enhancing measure by the Yahapalanaya regime.

Analysts estimate 14% WHT nets around Rs. 9 billion, but its withdrawal would have had a greater beneficial impact in making the Colombo stock market attractive, and widen the capital market participation. 

Other analysts said that the Government announced the removal of Capital Gains Tax of 10% on share transactions which is positive for the market. Effective date of this however is yet to be confirmed. 

Rajapaksa also pledged to scrap Pay As You Earn (PAYE), but that, too, was not fulfilled. 

The final decision was to increase the tax free threshold of the employment income of all public and private sector employees for the purpose of PAYE from Rs. 100,000 to Rs. 250,000 per month and the excessive personal income liable for income tax at the progressive rate of 6%, 12% and 18% for each tax slab of Rs. 250,000, with effect from 1 January 2020


http://www.ft.lk/front-page/Failure-to-remove-WHT-on-dividends-irks-investors/44-690924

SECsux


Senior Equity Analytic
Senior Equity Analytic
World bank can look after their own business.We will cut imports to balance things

NANDANA2012


Manager - Equity Analytics
Manager - Equity Analytics
@Arrowrisk wrote:Failure by the new Government to remove tax on dividends despite pre-election promise of scrapping WHT has irked investors. 

In the stimulus package announced last week by the Cabinet, only interest income up to Rs. 250,000 per month was exempted from the Withholding Tax (WHT), with effect from 1 January 2020. However prior to the election, presidential aspirant announced WHT along with Economic Service Charge (ESC) will be scrapped. Only ESC of 0.5% has been proposed to be done away with. The effective date of this amendment is yet to be announced.

The original announcement boosted investor and shareholder sentiment but failure last week to fulfil the pledge wholly is being viewed as a setback. 

“Continuity of 14% WHT on dividend is a total deterrent for investors,” analysts said, adding that the rate itself was high.

The WHT on dividend was introduced as a revenue enhancing measure by the Yahapalanaya regime.

Analysts estimate 14% WHT nets around Rs. 9 billion, but its withdrawal would have had a greater beneficial impact in making the Colombo stock market attractive, and widen the capital market participation. 

Other analysts said that the Government announced the removal of Capital Gains Tax of 10% on share transactions which is positive for the market. Effective date of this however is yet to be confirmed. 

Rajapaksa also pledged to scrap Pay As You Earn (PAYE), but that, too, was not fulfilled. 

The final decision was to increase the tax free threshold of the employment income of all public and private sector employees for the purpose of PAYE from Rs. 100,000 to Rs. 250,000 per month and the excessive personal income liable for income tax at the progressive rate of 6%, 12% and 18% for each tax slab of Rs. 250,000, with effect from 1 January 2020


http://www.ft.lk/front-page/Failure-to-remove-WHT-on-dividends-irks-investors/44-690924
We cant be asking everything at once when so many is given.

Sametime Govts need to realise open share markets bring in Foreign investment to the Country and that itself is a huge benefit for the Country, and killing it with taxes is crazy..Already some taxes built into trading fees. (1.2%)

NANDANA2012


Manager - Equity Analytics
Manager - Equity Analytics
@SECsux wrote:World bank can look after their own business.We will cut imports to balance things
Actually this is their business.... !!!

SECsux


Senior Equity Analytic
Senior Equity Analytic
@NANDANA2012 wrote:
@SECsux wrote:World bank can look after their own business.We will cut imports to balance things
Actually this is their business.... !!!
their importance to us depends on our ruler.

Teller

Teller
Moderator
Moderator
world bank chief statement against sri lankas tax relief spreaded wole over the world. Logically some of his concerns are correct. Foreign participation may negative in coming months


_________________




Teller said is said..

samaritan


Moderator
Moderator
There are several people who are concerned about where will the govt find the revenue to bridge the shortfall that could result owing to tax concessions. In the first place we are all used to a sluggish, inefficient, good for nothing administration which had been in control of the country's finances over the recent past without proper leadership. Hence, the skepticism is understandable.
One must understand that the govt also would have done their part of the home work prior to deciding on fiscal measures. In my opinion the govt is in the process of establishing political stability in a secure environment which are essential prerequisites to attract foreign investments. The Port City has the potential to attract massive investments and could achieve the status of an Hi tech commercial hub in the region as well. Tourism a major foreign exchange earner suffered a major setback due to the previous regime's careless attitude towards nation's national security. This sector will be revived with the incentives offered and govt's backing in order to reinstate the lost confidence of the tourists.
Most importantly we have a Meritocrat cum Technocrat and an efficient & capable leader for the first time in the political history of Sri Lanka to lead the nation. The country is to witness an unprecedented profound transformation which could be a surprise to most of us. So, Let's give it a chance and put an end to the negative thinking.


_________________




The biggest risk in life is not taking any risk at all.

NANDANA2012


Manager - Equity Analytics
Manager - Equity Analytics
@samaritan wrote:There are several people who are concerned about where will the govt find the revenue to bridge the shortfall that could result owing to tax concessions. In the first place we are all used to a sluggish, inefficient, good for nothing administration which had been in control of the country's finances over the recent past without proper leadership. Hence, the skepticism is understandable.
One must understand that the govt also would have done their part of the home work prior to deciding on fiscal measures. In my opinion the govt is in the process of establishing political stability in a secure environment which are essential prerequisites to attract foreign investments. The Port City has the potential to attract massive investments and could achieve the status of an Hi tech commercial hub in the region as well. Tourism a major foreign exchange earner suffered a major setback due to the previous regime's careless attitude towards nation's national security. This sector will be revived with the incentives offered and govt's backing in order to reinstate the lost confidence of the tourists.
Most importantly we have a Meritocrat cum Technocrat and an efficient & capable leader for the first time in the political history of Sri Lanka to lead the nation. The country is to witness an unprecedented profound transformation which could be a surprise to most of us. So, Let's give it a chance and put an end to the negative thinking.
True, GOTA will be a different leader who go beyond theories, traditions and practices and then only you can jump start and achieve above normal growth rate, already they are talking about 6% for 2020. If so, 8% for 2021 not difficult.  HIS VISION ALSO ABOUT ACHIEVING DEMOCRACY AND NORTH EAST ISSUES THROUGH FAST ECONOMIC DEVELOPMENT, which has a good logic. STRONG ACTIVE LEADERS CAN CHANGE HISTORY AND ALSO MAKE THEORIES NOT SO IMPORTANT.

NANDANA2012


Manager - Equity Analytics
Manager - Equity Analytics
@Teller wrote:world bank chief statement against sri lankas tax relief spreaded wole over the world. Logically some of his concerns are correct. Foreign participation may negative in coming months
Already there was not much foreign participation and also during last 5 years where many funds were just visiting Colombo due to Invitation from Ranil and his western masters. Still they didnt invest. True there will be not much western interest soon, as the current Govt is considered anti-democratic. But ultimately when things start move, they will find it difficult to keep away...

Teller

Teller
Moderator
Moderator
Based on above statement , most of the shares will be worthy not now but in 2021-2022, so why we pay high prices at the moment. Thats why i always advise members compare with the dividend VS current bank interest as a percentage. Better payback , i mean the cash flow is very important rather than EPS or NAVPS


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Teller said is said..

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