Major thrust of budget is formalizing economy: Ravi K

Nov 24, 2015 (LBO) – A major thrust of Sri Lanka’s budget for 2016 is formalizing the economy to bring in sectors that do not use formal banking channels, the finance minister said.

“What we want to ensure is that the economy is made more formal,” Finance Minister Ravi Karunanayake said speaking at a post-budget forum organized by KPMG.

Huge amounts of money is moved in the construction industry, for instance, through practices to avoid payment of VAT. Bringing these funds into the banking system would widen the tax base, Karunanayake said.

To achieve this, one measure will be discouraging cash transportation. Cash withdrawals between 1 million and 10 million rupees will be charged 2 percent, and above 10 million rupees at 3 percent.

There are no charges on cash withdrawals below one million rupees, and fees on bank drafts should remain below 150 rupees per draft.

“Our thinking is different here. This is not a revenue generation exercise,” he said.

A simplified corporate income tax structure would also incentivize corporates to maintain clean accounts, he said. The budget proposes a higher rate of 30 percent applicable for betting and gaming, liquor, tobacco, banking and financial services and trading, and 15 percent for all other sectors.

“This will propel a new taxation culture,” Karunanayake said.

“That’s why wanted to bring down rates. There is no point to harass. We are giving the feel good factor that is there. Now don’t maintain two books.”

With a proposed a National Digital Identity (NDI), a unique number used for passports, tax files, customs documents, vehicle registration, voter registers, welfare registers, bank databases and utility bills, the government aims to widen the tax base.

Ten billion rupees has been allocated for this purpose.

The first phase of the online Revenue Administration Management Information System (RAMIS), is expected to be ready for filing of returns and payment of taxes, from 1 January 2016.

A mandatory inclusion of the Taxpayer Identification Number or the Business Registration Number in all business transactions has also been proposed, while income tax returns will be simplified into a one-page document, Karunanayake said.

Several other measures appear to be aimed at streamlining corporate business.

All companies registered with the Registrar of Companies will have to pay an annual license fee of 60,000 rupees for private companies, and 500,000 rupees for public quoted companies. On voluntary liquidation, private companies must pay 250,000 rupees.

A National Payment Platform will enable the public to transfer funds through their mobile phones using their NDI, according to budget proposals.