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Sri Lanka unveils tax reforms to boost post-war economy

Sri Lankan President Mahinda Rajapakse yesterday announced a major tax reform package aimed at boosting the economy of the island as it recovers from the civil war that ended last year, reports AFP.

Rajapakse, who is also finance minister, unveiled the new measures as he presented the annual budget for 2011 with the deficit predicted to fall to 6.8 per cent of gross domestic product from 8.0 per cent this year.
He slashed import taxes on many capital goods, including on vehicles and industrial machinery by 25 per cent, and also simplified taxes charged on imports and retail trade. “Having ended the war, and with vital infrastructure in place, we are now in a better position to engage in an accelerated development process within the next six years,” Rajapakse said.

As part of foreign exchange liberalisation, he said foreigners in future would be able to buy into companies through local investment funds.

He also announced plans to lower value added tax for banks from 20 per cent to 12 per cent, ease taxes on construction companies to 12 per cent and offer breaks on commodity exports like tea, rubber and spices.
Tax breaks for the fisheries, agriculture and construction sectors were among the schemes to boost economic activity in the island after the bloody conflict between government troops and Tamil separatists ended in May 2009.

“One of the main objectives of my government is to double per capita income to 4,000 dollars by 2016,” Rajapakse said. “But, that is not the only objective, I want real incomes to go up.” “A high per capita economy will help us to regain many opportunities we have lost during the war years.”

Rajapakse, who has a strong grip on power in Sri Lanka after overseeing the defeat of Tamil Tiger rebels, raised taxes on casinos, alcohol and international phone calls.
Charges for overseas calls have fallen to historic lows due to stiff competition among phone companies.

The president said he would cut income tax for tourism- related businesses, but added tax breaks would favour more expensive hotels in Sri Lanka in an attempt to push the island towards the luxury holiday market.

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