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Confusion and delays mar populist Budget

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By Azhar Razak

Despite the interim Budget 2015 presented by the Finance Minister in Parliament being passed almost six weeks ago, Sri Lanka’s research analysts last week pointed out that there is still a great amount of confusion and delay regarding several interim proposals affecting economic policy direction. In some cases, the analysts said that although the companies are following the guidelines provided in the interim budget, official gazettes are yet to be published.

“There are many proposals that still need clarity. As far as the fuel price reduction and pricing formula is concerned we still don’t know how the reduction of Rs.33 (for petrol) is to be borne by the distributors. There is confusion on how the Super-Gain-Tax will be calculated. There has been nothing gazetted on how the levy on telecommunication companies are to be calculated. As far as the taxable income threshold is concerned, there has not been a gazette yet on shifting non-tax component of income from Rs.50,000 a month to Rs.62,500 month,” Chief Strategist, CAL Securities Purasisi Jinadasa said.

He further noted that as far as the proposals for the alcohol industry is concerned the proposal to impose additional annual tax has also not been gazetted while there has not been a gazette to give effect to the promise of new guaranteed prices for rubber, tea and paddy.

With regard to the proposed introduction of pricing formulae for fuel, Jinadasa said that as long as Brent remained below USD 50/bbl the fuel sellers will not make a loss on fuel sales (i.e. sales minus cost of sales).           

“However, as at end-February, selling prices (pump prices) have fallen by 45%, while global oil prices have fallen by 40%. Going forward, if the pricing formula (yet to be announced) is not transparent and fair, operators will have to shut-down,” the strategist cautioned.

Commenting on the increase in taxable income threshold he said that in the longer run, this will not be a benefit for the country as tax collection is the issue in Sri Lanka.

“The more sustainable solution is for the government to develop a robust tax collection system to widen the net (currently very few people pay tax). Success will help reduce the reliance on indirect tax, thereby easing cost of living (two birds with one stone),” Jinadasa further pointed out.

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