Sri Lanka cuts bank taxes, hikes tax on stock trading

Nov 22, 2010 (LBO) – Sri Lanka has cut a series of taxes on banks in a bid to increase banking activities, but raised a tax on stock trading, President Mahinda Rajapaksa said presenting the budget for 2011 in parliament. A debit tax on withdrawals from banks would be lifted and a so-called financial value added tax would be cut from 20 to 12 percent, Rajapaksa said.

Income tax on banks would be cut to 28 from 35 percent.

But the firms will have to put in the equivalent of 8.0 percent of financial value added tax to a an investment account with Sri Lanka’s central bank for three years.

The money has to be used by the banks to give to “grant long term loans at a lower rate of interest” the budget speech said. The interest from such loans are to be free of income tax.

Rajapaksa said a 0.2 percent tax on stock trading will be raised to 0.3 percent because there were no capital gains taxes.

Withholding tax on earnings of mutual funds would be the same as Treasury bills, he said. Interest on T-bills are now at 10 percent.

Unit trusts would be freed from economic service charges and foreigners would be allowed to buy them.

Income earned by unit trusts from listed stocks and bonds would be