Thu, 09 September 2010  20:33:55
Tax Brake 2 Comment(s)
07 Mar, 2010 07:15:14
Sri Lanka high bank taxes hurting capital: senior banker
Mar 07, 2010 (LBO) - Sri Lanka has to cut its high rate of tax on banks to allow the sector to build capital as the economy is poised to grow after a war ended last year, a top banker has said.
Taxation has in the past and continues to be in the present a contentious issue for the Banking industry," Hatton National Bank chief executive Rajendra Theagarajah told shareholders in its annual report.

"The sector faces an effective rate of taxation that stands at approximately 60 percent – the highest amongst similar economies in the Asian region - and is an undisputed dissuasion to capital formation."

In Sri Lanka, profits from domestic banking operations are taxed at 35 percent and foreign currency units 20 percent but another effective income tax exists in the form of 20 percent 'financial value added tax'.

The tax is charged on value added, which mostly consists of again profits and wages.

Sri Lanka's central bank Governor Nivard Cabraal has said that a presidential taxation commission was addressing the issue and there were plans to gradually bring the level of bank taxation down over several years.

Sri Lanka has a high spending state, which ran deficit of abour 10.23 percent of gross domestic product in 2009, according to provisional data.

HNB is Sri Lanka's second largest private bank in Sri Lanka with gross group assets of 287 billion rupees.

Sri Lanka's banks also need cash to boost their depleted buffers are non performing loans rose following an economic downturn triggered by domestic government deficit spending and an external slowdown.

Theagarajah said HNB had contained bad loans at 6 percent by the end of the year down from 8.1 percent in the third quarter and an industry average of 8.0 percent.

Loans which have been contracting had started to grow from the third quarter, he said.

From the third quarter loans have started to grow, Theagarajah said.

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READER COMMENT(S)
2. Sunil R Mar 09
Because of mortgages and other security considerations, Banks have total control of the customer. Mobility of customers are very difficult. This has allowed Banks to arbitrarily increase charges and interest rates. If it were possible for the customer to change Banks without much hassle, the competition will bring bank charges to realistic levels.
1. Punchi Mar 07
The Sri Lankan banking sector is blessed with highest spread in the region. The banks are thriving at the expense of other businesses in trade, services and manufacturing.

In order to have a tax cut the banks should reciprocate with a good rate cut to benefit the businesses. Finally there are only handful of banks but thousands of business establishments.