Economy Archives

Sri Lanka 2011 Budget Highlights.

Tuesday, November 23rd, 2010 at 2:01 pm 
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Key Budget Proposals on Corporate Bodies

Corporate Income taxes

Tax rates applicable to companies (excluding businesses  related to liquor and tobacco products) will be reduced to 28.0%.

The tax rate of businesses engaged in manufacturing or import of liquor and tobacco products will be increased from 35.0% to 40.0%.

Concessionary tax rate of 15.0% will be reduced to 12.0%
Tax on profits from agricultural undertaking will not exceed 10.0%

Other Business related taxes

VAT: The present 20.0% rate will be reduced to 12.0%

Deemed  Dividend  Tax:  Reduce  distributable  profits  for  deemed  dividend  tax  from  25.0%  to  10.0%  to  promote
investment

NBT: Reduce from 3.0% to 2.0% and the threshold will be reduced from Rs.650,000 to Rs.500,000 (per quarter)

Social Responsibility Levy, Regional Infrastructure Development Levy and Debit Tax, Turnover Tax (by municipal
councils) are discontinued

ESC:  The present threshold of Rs. 7. 5mn per quarter will be increased to Rs 25.0mn

Exports and Imports Industry

Impose CESS on all exports in raw and semi processed form : To encourage value added exports

Income tax rate of all export companies to be reduced from 15.0% to 12.0%

Reduction in income tax from 15.0% to 10.0% in companies which have domestic value addition (above 65.0%)
and brand names with patent rights

Tourism & related business

Levy of $20 per bed on all 05 star hotels that has a room rate less than $125 per night

Lowered income tax rate from 15.0% to 12.0%

NBT: threshold increased from Rs.500,000 to Rs.12,500,000 (per quarter)

NBT: removal of exemption ‐ services of star hotels above the rank of three Star
 

Banking and Financial institutions

Abolish the bank debit tax

Reduce VAT on financial services from 20.0% to 12.0%

Reduce tax on profits of banking and financial institutions from 35.0% to 28.0%

Transfer  tax  savings  to  investment  fund  account  with  CBSL.  Regulations  requiring  banks  to  adopt  low  market
rates and long term maturity for lending these funds will be introduced.


Stock market related taxes

To encourage listing in CSE: recognize expenditure in relation to such activities as a deductible expenditure for
tax purposes subject to a 1.0% of the value of the IPO

Increase share transaction levy from 0.2% to 0.3%

WHT on corporate debt securities will be treated on par with government securities

Insurance sector

Exempt re‐insurance commissions and claims from VAT to reduce the transaction cost of insurance

Unit trusts

Exempt from the Economic Service Charge

Tax exemptions: Unit Trusts or Mutual Funds from investment in listed debentures and equity

Telecommunication Industry

Combine  all  taxes  on  the  industry  (VAT,  NBT  ,Cellular  Mobile  Subscriber’s  Levy,  ECL)  and  impose  a
Telecommunications Levy of 20.0%

In place of license fees and CESS, a 2.0% percent license fee on gross revenue will be imposed

Exempt high‐tech equipment and machinery  from duties and VAT

Reduce the minimum floor rate for local calls from Rs. 2 per minute to Rs. 1.50 per minute from July 2011

Impose a levy of Rs. 2.0 per minute for outgoing International calls

Customs duty will be removed for goods relating to telecommunication

Gem & Jewellery Industry

Increase the foreign exchange allowances granted to import raw gem stone from US$ 10,000 to US$ 50,000 per
person

Remove all taxes on raw gem stones at the point of import
 
Garments and Textile industry

Machinery  and  equipment  to  manufacture  textile,  leather,  footwear  and  bags  will  be  exempted  from  import
duties and VAT
 
Liquor and Tobacco

Increase  tax  on  profits  of  businesses  engaged  in  the  manufacture  and  distribution  of  liquor,  cigarettes from 35.0% to 40.0%

Construction industry

Reduce income tax on the construction industry from 15.0% to 12.0%

Plantation Sector

Increase  the  subsidy  by  Rs.  50,000  per  hectare  to  small  holder  tea  growers  to  encourage  replanting  and  new
planting

To encourage valued added exports

 Increase export CESS on bulk tea to Rs.10.0 per kg
 Increase CESS on export of raw rubber from Rs.4.0 to Rs.8.0

Other Agri related proposals

05 year tax exemption for investment in seed farming and other planting material

Tax on profits from agricultural undertaking will not exceed 10.0%

Fisheries

Grant  credit  facilities  at  a  concessionary  interest  rate  of  8.0%  to  promote  inland  fishery  and  aquatic  resources
activities

Exempt the fisheries industry from income tax for period of 5 years

Livestock

Increase the farm gate price for liquid milk to Rs.50.00 per liter

Electricity

8.0%  increase  in  tariff  except  for  the  first  90  units  (excluding  religious  places,  government,  hospitals,  schools,
vocational training institute, universities, small business and SME)

Motor vehicles

Use  of  electrically  operated  vehicles  and  hybrid  electric  vehicles  will  be  encouraged  by  reducing  prevailing
Customs duty to a lower duty, i.e. 30% to 15%, 15% to 5% and 5% to zero

Imports by vehicle assembly business will see a new rate of duty of 15% from 30%

The rates applicable for vehicle registration and transfer will be revised

Reduced duties and taxes on passenger transportation vehicles by 25.0%


Shopping for Branded Products: 
To  promote  Sri  Lanka  as  an  attractive  destination  for  international  shopping  for  branded  items,  internationally  branded
items are exempted from VAT and Import duty.

Exchange control facilitation: to promote exports and develop local capital markets

Foreigners are allowed to invest in rupee denominated debentures by local companies

Sri Lankan companies are allowed to borrow from foreign sources

Permission is granted for foreign companies to open places of business in Sri Lanka

foreigners on tour or businesses in Sri Lanka are allowed to open accounts in foreign currency

Sri Lankan residents are allowed to invest in equity of overseas companies

Tax exemptions:

Tax holiday: A five year tax holiday will be offered for any company, which carries on a new undertaking, with a
minimum  investment  of  not  less  than  US$  5000  (but  not  more  than  US$  10  mn)  or  an  amount  equal  to  such
amount in rupees in such activities as specified by the Minister from time to time.

Personal income taxes

Reduce the current tax rates on personal income ranging from 5.0% ‐ 35.0% to 4.0% ‐ 24.0%

Increase the tax free threshold income from Rs. 300,000 to Rs. 500,000 and the tax slabs from Rs.400,000 to Rs
500,000

Source :  Lanka Securities (Pvt) Ltd (www.lsl.lk)

Monetary Policy Review – June 2010

Wednesday, June 16th, 2010 at 11:00 am 
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Central Bank of Sri Lanka – Press Release. 

Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002) declined for the third consecutive month, reaching 5.3 per cent in May 2010.  The annual average inflation increased marginally to 3.6 per cent in May 2010.  Inflationary pressures in the domestic economy remain subdued benefiting from dampened commodity prices in the international market and increased domestic agricultural output.
Growth in the money supply continues to moderate while accommodating an expansion in credit to the private sector. Credit extended to the private sector by the commercial banks, which contracted during much of 2009, has recorded a positive growth since March 2010. Expansion in credit obtained by the private sector indicates a gradual pick-up in economic activity, and this expansion is expected to gather momentum, particularly in view of the prevailing supportive monetary conditions.
Indicators of external sector performance point to encouraging developments.  Exports have recorded a healthy growth for the first quarter of 2010.  Imports have also increased in line with the recovery in economic activity.  The recent relaxation of selected import tariff would provide additional impetus to the economic recovery underway.  Workers’ remittances, which have recorded a growth of 14.1 per cent, year-on-year, for the first quarter of 2010, meanwhile, continue to cushion the current account.  Further, the Central Bank continues to be a net buyer in the domestic foreign exchange market.  Reflecting these trends, the foreign reserves of the country remain at comfortable levels.
Taking into consideration the above developments, the Monetary Board, at its meeting held on 15 June 2010, decided to maintain the policy interest rates of the Central Bank unchanged.
The release of the next regular statement on monetary policy will be on 13 July 2010.

Monetary Policy Review – May 2010

Thursday, May 20th, 2010 at 11:45 am 
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Central Bank of Sri Lanka – Press Release.
Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002) declined to 5.8 per cent in April 2010 while annual average inflation increased marginally to 3.4 per cent.  Price pressures in the economy have been dampened by improvements on the supply side, particularly the noteworthy performance in paddy production in the Maha season.  Prices of key commodities in the international markets also remain subdued, reducing price pressures in the near term. 
Developments in the monetary sector have been encouraging. Credit obtained by the private sector, which contracted since April last year, on a year-on-year basis, has begun to improve and indicates a positive growth in March 2010.  This development is attributable to the easing of monetary policy as well as improving financial conditions and the resulting downward adjustment in market interest rates.  The gradual expansion in credit obtained by the private sector indicates the solidifying recovery in the economy.  Meanwhile, growth in broad money moderated to 17.1 per cent, year-on-year, by March 2010, from 18.6 per cent at end 2009.  Accordingly, broad money growth remains compatible with the levels targeted in the monetary programme announced at the beginning of the year.
Taking into consideration the above developments, the Monetary Board, at its meeting held on 19 May 2010, decided to maintain the policy interest rates of the Central Bank unchanged.
The release of the next regular statement on monetary policy will be on 16 June 2010.

External Sector Performance – February 2010

Monday, May 10th, 2010 at 7:10 pm 
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Press Release – Central Bank of Sri Lanka

Sri Lanka’s external sector performance showed signs of improvement along with the gradual recovery of the global economy.   Earnings from exports grew by 20.0 per cent in February 2010 to US dollars 629 million led by higher earnings from agricultural and industrial exports. The expenditure on imports also increased by 60.6 per cent to US dollars 973 million, due to the increased demand for imports within all the sub sectors.  Accordingly, the trade deficit expanded to US dollars 344 million in February 2010.
External Sector Performance – February 2010

External Sector Performance – February 2010

Earnings from agricultural exports, which accounted for 27.0 per cent of total exports, increased in February 2010, year-on-year, led by tea, rubber and minor agricultural exports. Tea and rubber, whose export volumes increased by 20.1 per cent and 44.1 per cent, respectively, continued to fetch higher prices in the international market.  Tea prices increased by 25.7 per cent to US dollars 4.35 per kg mainly due to the finer quality of Ceylon tea exports and the supply shortages in the international market.  Rubber prices increased to US dollars 2.86 per kg, reflecting a 95.4 per cent increase compared to February 2009, mainly due to the recovery in international demand.  Supply shortages due to the adverse weather conditions that prevailed in the major rubber producing countries in Asia also helped increase the international rubber prices.  Earnings from minor agricultural exports increased due to higher prices fetched by fruits, coffee, and cocoa products  and increased volumes of vegetables, arecanuts, cashew and essential oils.  Export earnings from certain spices, such as cinnamon and cloves,  increased led by higher volumes and prices.  The industrial exports, which were affected by the global economic crisis, rebounded in February 2010, led by the exports of processed food and beverages as well as rubber products. Although exports of textile and garments and ceramic products declined in February 2010, year-on-year, they reflect an improvement since January 2010. 
All major categories of imports increased in February 2010. Expenditure on imports of consumer goods increased significantly, with notable increases in food imports such as rice, sugar and wheat.  Expenditure on imports of non-food consumer durables also increased significantly in February 2010. Amongst intermediate goods, expenditure on petroleum imports increased substantially in February, year-on-year, as the average import price of crude oil rose by 71.4 per cent to US dollars 78.23 per barrel.  Import expenditure on fertilizer increased in February 2010, compared with the same period in 2009, mainly due to the substantially higher import volumes.  Imports of investment goods also increased in February 2010 led by higher expenditure on transport equipment, building materials and machinery and equipment, which augurs well for future economic activity.   
During the first two months of 2010, foreign remittances increased by 13.0 per cent over the corresponding period of 2009 to US dollars 564 million.  The gross official reserves, with and without Asian Clearing Union (ACU) funds, were at US dollars 5,408 million and US dollars 5,032 million, respectively, by end February 2010. Based on the previous 12 months average imports of US dollars 921 million per month, the gross official reserves, without ACU funds, were equivalent to 5.5 months of imports.
The performance of external trade during the period is further illustrated in the following table.

External Trade Performance: February 2010 and January – February 2010
Category
February
2009
US$ mn
February
2010
US$ mn
Growth -
February
(per cent)
Jan -Feb
2009
US$ mn
Jan -Feb
2010
US$ mn
Growth -
Jan -Feb
(per cent)

Exports
524.3
629.0
20.0
1,015.4
1,100.9
8.4
  Agricultural
108.6
169.9
56.4
209.6
312.4
49.0
     of which, tea
72.3
109.3
51.1
133.9
200.1
49.5
  Industrial
407.7
452.8
11.1
792.7
772.8
-2.5
     of which, textiles and garments
  Mineral
275.1
8.0
248.5
6.2
-9.7
-21.7
515.7
13.0
422.2
15.8
-18.1
21.2

 

Imports

606.3
973.4
60.6
1,288.9
2,134.3
65.6
  Consumer Goods
143.7
255.5
77.8
297.8
489.0
64.2
     of which, food and drink
96.7
185.9
92.2
194.7
346.7
78.0
     of which, other consumer goods
47.1
69.7
48.1
103.1
142.4
38.1
  Intermediate Goods
289.1
443.3
53.4
622.9
1,068.4
71.5
     of which, petroleum
95.5
136.3
42.7
175.9
466.6
165.3
     of which, textile and clothing
93.2
128.1
37.4
205.6
249.5
21.4
  Investment Goods
167.5
261.7
56.3
350.8
480.8
37.0

     of which, machinery and equipment
79.8
117.9
47.7
159.7
201.5
26.2

     of which, transport equipment
20.4
39.3
92.8
47.1
92.1
95.5

     of which, building material
49.7
73.6
48.2
99.1
134.3
35.6

Balance of Trade
-82.1
-344.5
319.8
-273.6
-1,033.4
277.8

Workers’ Remittances
241.4
274.6
13.8
499.4
564.4
13.0
                                                                                                           Source: Central Bank of Sri Lanka
                                                                                                                         Sri Lanka Customs

Monetary Policy Review – December 2009

Monday, December 14th, 2009 at 3:19 pm 
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Press Release – Central Bank of Sri Lanka.

Current Account to Record a Surplus in 2009 for the First Time since 1977
Inflationary pressures continue to remain subdued as reflected by the annual average inflation of around 4 per cent recorded by end November 2009, although year-on-year inflation increased to 2.8 per cent.  The outlook for inflation remains benign.  The development of the Northern and Eastern provinces in the period ahead would result in their increased integration with the rest of the country, leading to enhanced supply of goods and services in the country.  The positive supply side developments expected to take place in the domestic economy are likely to have a favourable impact on inflation, going forward.
The higher reduction in expenditure on imports compared to the decline in earnings from exports has resulted in the trade deficit narrowing significantly during the first nine months of 2009.  The overall deficits in the trade and income accounts were offset by higher inflows into the current transfers and services accounts, resulting in a surplus of US dollars 393 million in the current account for the first nine months of 2009.  It is expected that this performance will continue through the fourth quarter as well and the current account would record a surplus in 2009 for the first time since 1977.
Prospects for domestic economic activity have improved with the more favourable investment climate that now prevails and the gradual recovery of the world economy, supported by the relaxed monetary policy stance of the Central Bank.  Hence, it is expected that credit flows will gradually pick up, with the more favourable credit conditions that prevail on account of the decline in market interest rates as well as the more stable conditions in financial markets.  Although broad money supply is likely to further expand, particularly in view of the expansion of foreign assets of the country and the likely pick up in credit flows to the private sector in the ensuing period, such an expansion has been accounted for in stipulating the monetary targets for this year as well as the next year.   
Considering these developments the Monetary Board at its meeting on 11 December 2009 decided to maintain its policy interest rates at their current levels.  Accordingly, the Repurchase rate and the Reverse Repurchase rate would remain at 7.50 per cent and 9.75 per cent, respectively. 
The Road Map: Monetary and Financial Sector Policies for 2010 and beyond, to be announced on 4 January 2010, will enunciate the monetary policy strategy of the Bank for 2010.    
The release of the next regular statement on monetary policy will be on 19 January 2010. 

External Sector Performance – September 2009

Thursday, November 26th, 2009 at 8:28 am 
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Press Release – Central Bank of Sri Lanka

25-11-2009.


The trade deficit contracted for the ninth consecutive month in September 2009 by 62.2 per cent to US dollars 220 million. The cumulative trade deficit decreased by 60.0 per cent to US dollars 1,848 million during the first eight months of 2009 from US dollars 4,615 million in the corresponding period of 2008. Workers’ remittances increased by 10.3 per cent to US dollars 2,481 million during this period. As a result, Workers’ remittances during the first nine months of 2009 were US dollars 634 million (about 34 per cent) in excess of the trade deficit.

Earnings from exports, which took on an increasing trend since April 2009 reversed in September following the usual seasonal pattern. Accordingly, export earnings in September 2009 amounted to US dollars 568 million reporting a decline of 12.8 per cent, year-on-year.

Sri Lanka’s Gross Official Reserves to Exceed US dollars 5 billion with the Approval of the Second Tranche under the IMF – SBA Facility

Saturday, November 7th, 2009 at 12:32 pm 
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Central Bank of Sri Lanka – Press Release

07-11-2009.


The Executive Board of the International Monetary Fund (IMF) on 06 November 2009 approved the second tranche of SDR 206.7 million (approximately USD 329 million) under its 20-months Stand-by Arrangement (SBA) facility of SDR 1.65 billion (approximately USD 2.6 billion) to Sri Lanka. The Letter of Intent (LOI) and the Technical Memorandum of Understanding (TMU) in this regard is made available in the Central Bank of Sri Lanka web site (www.cbsl.gov.lk).


The gross official international reserves (without ACU balances) of the country, which has already exceeded US dollars 4.8 billion, will surpass US dollars 5 billion mark with the receipt of the USD 329 million. With the renewed investor confidence on the Sri Lanka’s economy and the continuation of the steady increase in foreign exchange inflows, the country’s external reserves position is expected to strengthen further in the coming months.

Central Bank expects further reduction in lending rates by Finance and Leasing Companies

Friday, November 6th, 2009 at 9:59 am 
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Central Bank of Sri Lanka Press Release. (05-11-2009)


The Central Bank has been easing its monetary policy since the beginning of 2009 in view of the rapid deceleration in inflation, in order to provide a stimulus to economic activities. In response, money market interest rates have fallen gradually and Treasury bills yield rates have declined by over 900 basis points so far this year. Similar declines have been observed in other short-term interest rates as well. In line with such decline, banks’ deposit and lending rates too have reduced significantly. Deposit rates of registered finance companies and borrowing rates of specialized leasing companies too have reduced, and are expected to reduce even further, resulting in a substantial reduction in their costs of funds.

In that context, the Central Bank is of the view that there is now sufficient space for the registered finance companies and specialised leasing companies to reduce their lending rates, and accordingly the Central Bank expects those financial institutions to make a commensurate downward adjustment in lending rates, over the coming weeks. Such a reduction would benefit entrepreneurs in industry, services and agriculture sectors, in particular small and medium scale businesses. At the same time, the leasing, hire purchase and other lending volumes of registered finance companies and specialized leasing companies would increase as a result, thereby contributing to improve economic activities in the country.

Sri Lanka successfully concluded USD 500 Million Bond Issue.

Friday, October 16th, 2009 at 12:25 pm 
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Here is the full Press Release Issued by Central Bank of Sri Lanka.

FOR RELEASE OUTSIDE THE UNITED STATES ONLY

Sri Lanka successfully prices USD500 million sovereign bond offering

Yesterday, the Democratic Socialist Republic of Sri Lanka priced a USD500 million 5-year sovereign bond issue (the “Offering”), with a coupon of 7.40%. This represents Sri Lanka’s first international offering following the end of the internal conflict.

The Government will use the net proceeds from the Offering to supplement available concessional funds to develop infrastructure projects that have previously been approved by the Government and included in the current 2009 Budget.

Central Bank of Sri Lanka Governor Ajith Nivard Cabraal commented:

“We are very pleased with the outcome of our latest sovereign US Dollar bond issue. The strong response signifies the heightened confidence of investors globally in Sri Lanka and the country’s enhanced growth prospects following the end of the conflict. This transaction broadens our international investor base substantially and enhances Sri Lanka’s financial flexibility for the future.”

The Offering attracted an orderbook that was over-subscribed by more than thirteen times one of the highest level of over-subscription of any sovereign US Dollar bond offering during 2009 year-to-date.

Orders were received from two hundred and sixty-nine (269) investors. By geography, 45% of the bonds allocated to investors in the United States, 31% to Europe and 24% to Asia. By investor type, 78% of the bonds were allocated to Fund Managers, 8% to Banks, 7% to Retail, 4% to Insurance Companies and Pension Funds and 3% to other investors.

The Offering is in 144A / Reg.S format and the bonds mature on 22nd January 2015. The bonds are rated B by Standard & Poor’s and B+ by Fitch Ratings, and will be listed on the Singapore Exchange. The coupon of 7.40% is significantly lower than the coupon of 8.25% on Sri Lanka’s inaugural USD bonds issued in October 2007.

HSBC, J.P. Morgan and The Royal Bank of Scotland acted as joint lead managers and joint bookrunners on the Offering.

This press release does not constitute an offer of securities for sale in the United States or elsewhere. The securities referred to above are not being registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from such registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer and it will contain detailed information about the issuer, including certain statistical and other economic data. No public offering of the securities will be made in the United States, and the issuer does not intend to register any part of the offering in the United States.

Interest Rates in the Treasury Bill Market declines to a Single Digit

Wednesday, September 23rd, 2009 at 7:55 pm 
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Press Release – Central Bank of Sri Lanka 23-09-2009.

The yields at the Treasury bill primary auction held on 23 September 2009 declined to a single digit level of 9.70 per cent for three months Treasury bills for the first time after November 2005.

With this reduction, primary market yield rates of the Treasury bills have declined by 763 – 795 bps during the year 2009. The primary market yield rates of Treasury bonds also followed the same trend and declined by 956 bps. The decline in yields is witnessed in all maturity classes of Government securities extending up to the 10 year maturity horizon. This reduction in yield rates is in line with the gradual easing of the monetary policy stance by the Central Bank of Sri Lanka and increased foreign investor participation in the Government securities market.

In line with these developments, a reduction in the entire interest rate structure in the economy, including the lending rates of the commercial banks is expected.