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Thursday, July 8, 2010

Banks, financial institutions to get tax cuts

The government realises it cannot develop Sri Lanka’s economy on its own. With public investments limited to 6 percent of GDP, its calling out to the private sector to play a more active role.

By Devan Daniel

The government is planning to reduce taxes imposed on banks, financial institution and companies in a bid to generate investments required to push Sri Lanka’s growth rate to 8 percent in the short term and to double digits in the medium term.

Treasury Secretary Dr. P. B. Jayasundera said the government would lower tax rates of banks, financial institutions and private sector firms with the next budget, to be announced this November, so that adequate resources could be diverted for investments.

"The government can only maintain public investments at around 6 percent of GDP. For us to achieve an economic growth rate of 8 percent, private sector investments must increase to 35 to 40 percent of GDP from current levels of 25 to 27 percent of GDP and the budget for 2010 clearly spells out the opportunities for private sector investments in infrastructure development activities," Dr. Jayasundera said addressing the Sri Lanka Economic Summit and 24th conference of Confederation of Asia Pacific Chambers of Commerce and Industries in Colombo yesterday.

He said the government had embarked on infrastructure development in areas that are less attractive to the private sector. "We took the initiative to develop infrastructure and by the second quarter of next year the first phase of this would be completed. We hope the private sector would be ready to play a greater role by then.

"The government is trying to attract private investment. With each 1 percent of GDP the government spends on infrastructure developments it is hoped the private sector would invest 5 percent of GDP," Dr. Jayasundera said.

He said the government was struggling to keep (budget) deficits in check in keeping macroeconomic fundamentals right. It is trying to get the policy regime right and would introduce ambitious fiscal reforms and bring down the budget deficit. The government would also lower taxes and formulate clearer regulations, eliminate problems of land reclamation and make Sri Lanka an investor friendly environment.

Dr. Jayasudera said low tax rates would also help the private sector in its role of investing in the country’s infrastructure.

The banking sector is one of the highest taxed sectors in Sri Lanka at almost 65 percent, preventing some of them to be able to lend as much as they would like. Also, during the past few years, high budget deficits led to an increase in government borrowings from the domestic sector, which crowded out private sector credit.

source - www.island.lk