COLOMBO, 24 November 2015: Sri Lanka’s new government used its first full budget, announced last Friday, to lift taxes on foreign investors and vowed to reverse “isolationist” policies of the former regime, which faced international censure over its human rights record.
Finance Minister Ravi Karunanayake said the previous administration of strongman Mahinda Rajapakse had left Sri Lanka “on the brink” of receiving Western sanctions by refusing to address rights issues.
Karunanayake used Friday’s budget to raise the threshold for paying personal tax three-fold, reduce corporate income tax and announce an exemption for small businesses such as corner shops.
He reduced levies on hotels and the travel industry, as Colombo looks to revive the key growth sectors following the end of the conflict that claimed 100,000 lives between 1972 and 2009.
But he sharply increased taxes on gambling and casinos as well as motor vehicles and liquor, favourite targets of successive governments to raise revenue.
“The foreign policy of Sri Lanka was blemished and we were on the brink of receiving stringent economic sanctions and almost left to fend for ourselves,” Karunanayake, said while presenting the 2016 budget in parliament.
The finance minister laid out several foreigner-friendly proposals including the lifting of restrictions on foreign ownership of land.
Former president Rajapakse banned foreigners owning property in November 2012 and ordered that any real estate leased to non-nationals will be subjected to a 100% tax payable upfront for the entire duration of the lease.
The new government proposed removing the lease tax on non-nationals.
The finance minister also announced removing exchange control laws that had been an impediment to direct foreign investment.
He said foreign investment approvals will be granted within 50 days under a new regulatory body known as the Agency for Development.
“This will certainly be a game changer in promoting investments,” he added.
He reintroduced a resident visa scheme for foreign nationals who wish to make Sri Lanka their second home.
Sri Lanka still needs huge foreign and local loans to bridge the budget deficit for the calendar year 2016, estimated at 5.9% of the country’s GDP, down from 6% in 2015.
“At present, the public debt to GDP ratio stands at around 72% which is high, by accepted international standards,” the minister said. “Our focus and strategy would be to comply at all times.”
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