Sri Lanka business costs up due to new forced saving scheme

Nov 22, 2010 (LBO) - Sri Lanka's business operating costs are to rise with wages expenses rising by 4.0 percent following another state managed forced savings plans being set up, though income taxes have been cut to 28 percent from 35 percent.

The budget speech said the state will force employers to transfer the entire gratuity received by a private sector employee to this new fund.

Sri Lanka's private sector employees are already on a forced savings scheme, the Employees Provident Fund, to which 8.0 percent of their salaries are taken.

For years the funds have been invested at low interest rates in state securities, and questions have been raised about negative returns paid by the state during high inflationary periods and mis-use of EPF funds for financial repression.

The private sector worker pension funds are a key source of deficit financing.

With an additional 2.0 percent the state will take and use up to 10 percent of the salary of private sector employees.

Businesses will also have to cough up an additional 2.0 percent as salary costs. Businesses already pay a 12 percent fee for the EPF and 3.

0 percent for another state managed fund, the Employees Trust Fund.

The new pension fund will be management by