Trickling Down

The banking sector is planning to pass on a small percentage of their costs to customers, when the proposed 10 percent VAT comes into effect from January.rn

rnUnder the budget proposal, VAT is slapped on the aggregate net profit and employee related expenses of all banks and financial institutions. The financial sector was also denied input credit and the government hopes to raise around Rs. 2.75 bn through this exercise.rn

rnThe government is keen the tax will not hurt lending rates. But banking analysts
quote say this is likely to happen. Most local banks maintain a cost to income ratio of around 70 percent, with some going as high as 80 percent. rn

rnldblquote We estimate around 0.35 percent to 0.38 percent will be passed on to the customer as interest costs,
dblquote says Ajantha Madurapperuma, CEO Seylan Asset Management and President of the Primary Dealers Association.rn

rnAddressing participants at a post budget seminar organised by the Institute of Taxation on Tuesday, Madurapperuma said the