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Revenue from taxes, ESC increases by 25 per cent

According to the Mid Year Fiscal Position Report 2008, which was presented to the parliament recently noted that the, total revenue from corporate profits tax, personal income tax, tax on interest income and the Economic Service Charge (ESC) at Rs.49,270 million showed a 25 percent increase during the first five months of 2008 over the corresponding period of 2007.

This enhanced performance is noteworthy in the backdrop of the significant achievements of income taxes reaching 3 percent of GDP in 2007.

In addition to the policy measures implemented in the last three years several measures were introduced in the 2008 Budget with a view to further broaden the income tax base and its administration while extending concessions and exemptions for development activities to give an impetus to the economic growth, the report said.

Profits and income from the export of gems after cutting and polishing of gems imported in raw form, was exempted, while a concessionary rate of 2.5 percent will be applicable for gems sold at gem auctions conducted under the sponsorship of the State Gem Corporation (SGC), with a view to promote the industry as a high foreign exchange earning industry.

Profits and income earned outside Sri Lanka by any person or partnership in Sri Lanka, and if such profits and income are remitted to Sri Lanka through a bank was exempted from income taxes to boost the inflow of foreign exchange to the country, the report added.

If the turnover of any business comprises of exports or earnings in foreign exchange, the applicable ESC rate was reduced to a maximum of 0.25 percent. The concessionary ESC rate of 0.1 percent applicable for apparel exports at present was extended to the business of exporting apparels through buying offices, with a view to give an impetus to exports.

Value Added Tax (VAT) revenue up to May 2008 amounted to Rs.85,524 million, an increase of 19 percent over the corresponding period of last year, the report pointed out.

Decline in motor vehicle imports, impact of the concessionary duty schemes implemented for public servants, decline in production of hard liquor, drop in cigarette sales and import of essential commodities liable for a VAT coming under a unified tax contributed to the moderate growth in the VAT revenue collection.

This performance should also be viewed with the exemptions granted to import and supply of machines and equipment for thrust industries to boost such industries, it stated.

Further to the exemptions already in place with respect to sectors, several development oriented VAT exemptions were granted with effect from 1st January 2008.

Revenue from excise taxes on liquor, cigarettes petroleum products, motor vehicles and selected consumer durables increased to Rs.41,502 million, the report noted.

A marginal decline in hard liquor production compared to a 9 percent increase in the corresponding period of last year, cigarette sales volumes reducing by 6 percent, decline in vehicle imports which are liable for excise duties, impact of the concessionary duty scheme for motor vehicles for public servants contributed adversely on excise duty revenue, despite the high excise duty structure that is presently applicable.

Motor cars and vans imported under the normal excise duty regime reduced by 20 percent in the first five months of 2008 compared to the same period of 2007.

The exemption granted on duty rates on importation of vehicles by public servants was continued up to end March 2008. 7,240 of such vehicles were imported in 2008 where the revenue forgone by the Government was around Rs.11,000 million, the report highlighted.

Duty rates applicable on liquor were increased in October, while the rates on cigarettes were revised in October and December in 2007.

Duties on cigarettes were further revised in March 2008. Excise duty rate applicable to selected non essential imports was increased from 10-15 percent with effect from 8th November 2007.

Import duty revenue increased marginally to Rs.23,031 million in the first five months of 2008. The slowdown in motor vehicle imports, application of a unified tax for essential commodities, mainly contributed to the slow growth in import duties.

The unified tax on essential commodities, which includes the custom duty generated Rs.6,311 million in the first five months of 2008, the report stated.

Although a unified tax is applicable on essential commodities this tax rate is not fully compensating the effective duty rates under different taxes previously applicable.

These unified rates have not been revised after their introduction from 1st January 2008 considering the high cost of living that prevailed during this period. With the present international prices of these essential items, the revenue forgone up to May 2008 is around Rs.5,000 million.

Revenue from Port and Airport Development Levy (PAL) generated Rs.12,996 million in Jan-May 2008 period. This improvement in PAL collection has taken place despite the exemption granted for imports that are used for export and concessionary rates applicable on certain machinery and medicines, it said. Cess revenue amounted to Rs.9,315 million during the period under review compared to Rs.5,181 million in the same period of 2007. Scaling up of Cess rates and imposing Cess on certain imports which are effectively manufactured in Sri Lanka contributed to the enhancement of Cess revenue.

Non tax revenue collected during the first five months of 2008 amounted to Rs.25, 397 million which include Rs.8,000 million being Central Bank profit transfers. The increases recorded in sub sectors such as interest, rent, sales and charges, social security contributions contributed to the enhanced non tax revenue collection.

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