Capital Market boost expected from tax-linked budget proposals

by Sanath Nanayakkare

The tax exemptions granted to Unit Trusts in Budget 2015 are an incentive given to the Capital Market, financial analysts said at a KPMG-organized session featuring Budget Highlights in Colombo, a few hours after the budget was presented on October 24.

According to this proposal, profit and income arising or accruing to any Unit Trust from investments made, on or after 1, January 2015, in USD deposits or USD denominated securities listed in any foreign stock exchange, will be exempt from income tax.

Meanwhile, First Capital Research in its executive summary on Budget 2015 said, "The electricity tariff reduction will be a positive sign for the overall Capital Market while strong infrastructure development may assist the construction related companies. Certain concessions granted to the plantation sector may also be beneficial to the Capital market."

Another proposal beneficial to the Capital Market is the exemption from taxation on the interest or discount accruing or arising to any person from investment in any Corporate Debt Security issued by the Urban Development Authority, on or after 1 January 2015.

Apart from that, concessionary tax rates granted to the manufacturing sector are seen as a measure to boost competitiveness. According to this proposal, income tax rate payable on profits and income out of local sales by any local manufacturer who has commenced the business of manufacturing during the years of 1970 -1979 and sustained competitiveness in imports, will be reduced by 10%.

Meanwhile, Royalty Payment proposal on IT/BOP will have a positive impact on startups.Profits and income arising or accruing to any company, partnership or body of persons outside Sri Lanka, from any payment made by way of royalty as a specific requirement of any IT/BPO company in Sri Lanka, will be exempt from income tax for a period of two years, from the commencement of such IT/BOP company.

The concessionary tax rate granted to employees is seen as a measure to boost domestic consumption. According to this proposal, maximum income tax rate applicable to all employees will be 16%. Currently, this maximum rate of 16% is applicable only to certain professionals. Effective from 1 April 2015, deductions under PAYE tax will be as follows;

Customs duty and CESS rates to be revised related to the importation of machinery are expected to encourage modernization of industries in BOI companies, where machinery used for more than 10 years and is disposed of, will be granted duty exemption.

Concessionary duty permits to be issued to high-income-earning Sri Lankans working overseas for the importation of motor vehicles to the value of 60% of foreign currency would encourage them to remit money to Sri Lankan banks.

Proposed reduction on import tax on trucks and lorries could have a significant impact on logistical operations, while the 25% Customs-based tax reduction on electric cars is meant to promote the use of electric cars as a way of reducing carbon emissions and saving money on fueling-up.
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Duty change will have little impact on car prices

The re-structuring of import taxes on motor vehicles has had a minimum impact on the prices of cars, but van prices should come down considerably, figures compiled by vehicle importers’ association showed yesterday.

The association compiled the new tax rates under a single charge after President Mahinda Rajapaksa announced in his budget speech the abolition of a plethora of levies and replacing them with single tax.

Under the new system, small hybrid cars will be taxed at 57.5 percent of the CIF value, marginally down from the overall tax rate of 59.74 percent charge earlier.

President Rajapaksa said the new tax structure will earn an additional 5,000 million rupees for the government.

Gasoline powered small cars with an engine capacity of less than 1,000 cc will be taxed at 172.5 percent, down from an effective rate of 201.67  percent earlier. However, the minimum tax of 650,000 rupees applicable on each car means the duty reduction will have little impact on low-end Indian-made cars.

The biggest beneficiary, however, will be vans, with both diesel and gasoline powered vans now charged at 97.75 percent compared to 175.22 percent earlier. The tax cut on vans should see a new flood of these vehicles which were discouraged by the huge taxes in recent years.

Price of a hearse should also come down with a generous tax reduction in this category of slow moving vehicles. A mid-range hearse should now attract a tax of 172 percent, down from 201.67 percent levied earlier. The government had last year removed taxes on modified sports cars used for racing.

Three wheel scooters have had their tax slightly changed in the current budget. The tax of trishaws  go up from 119.76 percent to 120.75 percent. 

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