New Budget Proposes Sweeping Changes


While high inflation and the skyrocketing cost of living making life difficult for many in crisis-hit Sri Lanka, it has been proposed to increase the salaries of all public sector employees by Rs 20,000, Ceylon Today reliably learns.

This is included in the new budget proposals being discussed at the moment to address the current economic abyss in the country.  Prime Minister Ranil Wickremesinghe in his special statement to the nation recently said a new budget would be introduced soon, as the previous budget is not realistic given the current circumstances.

It is also proposed that minimum daily wage of all plantation sector workers and other daily wage earners be increased to Rs1,500.

According to the proposals that are being discussed at the moment, five State-owned Enterprises including SriLankan Airlines have been identified to divest their State holdings through international bidding.

Wickremesinghe in his address proposed to privatise SriLankan Airlines. Apart from that, it has been discussed to privatise Grand Hyatt, Sevenagala, Pelwatte and Hingurana sugar factories, Hilton and Port City lands owned by the UDA.

The appointment of respective expert committees to look into the management of loss-making State-owned institutions such as Sri Lanka Transport Board (SLTB) and Sri Lanka Railways (SLR) with the view to converting them to profitable institutions has also been proposed.

It is also proposed that foreigners should be allowed to purchase non-agricultural lands on a freehold basis with a stamp duty rate of 10%. Granting residency visa for such foreign property buyers should also be considered if the purchase price is in line with above thresholds.

Furthermore, it has been recommended to introduce a robust fuel pricing formula where fuel selling   rates will be matched with the world market prices on a monthly basis, as the Ceylon Petroleum Corporation’s (CPC) current pricing mechanism is no longer be sustainable and hence has created a strain on the economy.

“There is a substantial difference between CEB’s cost and income on electricity production. Such subsidised electricity tariff structure will no longer be feasible and continue to create a strain on the fiscal position of the government. Therefore, electricity tariffs should be adjusted based on a formula derived from global fuel and coal price fluctuations on a quarterly basis to reduce the pricing gap,” the proposals stated.

To safeguard the banking sector, it has been proposed that shareholdings of private banks held by State-owned institutions be divested through a bidding process and the collective influence exercised over private banks by State-owned institutions or State-controlled institutions such as EPF, ETF be limited to 15 per cent, thereby permitting the private sector banks to function independently.

This is because currently the Government exercises significant influence and virtually control over almost all private banks through shareholdings of the private banks by various State-owned institutions such as Sri Lanka Insurance Corporation, Bank of Ceylon, Employees’ Provident Fund, Employees’ Trust Fund, etc., which undermines healthy competition and the ability of the private banks to operate independently, the proposals said.

Furthermore, it has been proposed that locals be permitted to open Resident Foreign Currency (RFC) accounts to deposit USD. Such RFC account holders will be permitted to use their deposits for any local Rupee payments and for payments in USD for health and educational expenses and for imports subject to prescribed limits. All worker remittances up to USD 1,000 per month should be given a 20 per cent premium on prevailing exchange rate at the time of conversion into LKR.

To minimise the inconvenience to the public and congestion in Colombo, it has been proposed that the issuance of Passports, Identity Cards and Birth Certificates be completely decentralised to Divisional Secretariats.

To encourage dividend income from foreign investments in shares, it has been proposed that such dividends received be given a 10 per cent premium on the  prevailing exchange rate at the time of repatriating their dividends.

To develop the tourism industry, VISA on Arrival process to be further streamlined and opened up for all countries and it has been recommended that three new casino licences to be auctioned for interested parties and the payments of licensing fees to be made in USD.

Furthermore, it has been proposed to increase the standard VAT rate up to 16 per cent from the prevailing standard rate of 8 per cent. However, it has been proposed to maintain zero per cent VAT on the direct export of goods and services provided outside Sri Lanka. Reintroduction of PAYE Tax at a flat 10% of monthly salaries of above Rs 300,000 as a final tax on salaries., reintroduction of the Withholding Tax at 5% on all interest income including Deposits, Treasury Bills and Bonds, etc. and the Banking and Finance sector to recover and pay 0.1% on all interest income have been proposed as well.