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Hayleys Co-Chairman Dhammika Perera
Secretary to the Treasury and Ministry of Finance S.R. Attygalle
By Uditha Jayasinghe
There will be no change in Sri Lanka’s generous tax-free dividends policy to foreigners though the 2021 Budget referred to new conditions or ‘requests’, whilst Sri Lankans will continue to be taxed prompting at least one business leader to flag-off the ‘single country, two laws’ facet last week.
The Daily FT-Colombo University MBA Alumni Association organised popular 2021 Budget Forum televised live via Ada Derana 24 and social media platforms of Wijeya Newspapers on Friday triggered much debate on the taxation policy on dividends as well as some of the new tax measures and incentives.
From 2020, January receipt of dividends by foreigners has been tax-free. However the 2021 Budget presented last week referred to a proposed exemption on tax on dividends of foreign companies for three years if such dividends are reinvested on expansion of their businesses or in the money or stock market or in Sri Lanka International Sovereign bonds.
The 2021 Budget also proposed a reduction of tax imposed on dividend income received by multinational companies by 25% in 2021 and 50% in 2023 under the condition that they increase their exports by 30% and 50% respectively.
These two moves created uncertainty over their relevance given the prevailing blanket exemption enjoyed by non-residents on dividend income received from Sri Lanka. Some wondered whether the new proposals implied if not adhered to non-nationals dividends will be taxed.
At the Daily FT-Colombo Uni. MBAA Budget Forum, Treasury Secretary S.R. Attygalle clarified it was not going to be so foreigners will continue to enjoy tax-free dividend income. “Via these proposals we have only made a request for non-nationals individuals and multinational companies to reinvest in Sri Lanka and increase exports where applicable,” Finance Ministry Secretary emphasised.
Business leader and Hayleys PLC Co-Chairman Dhammika Perera who was among the 11-member panellists chipped in saying whilst foreigners are favoured, Sri Lankans are required to pay taxes ranging from 14% at corporate level on dividend income and 18% at personal income tax level.
He went on to flag-off that this was a case of “one country, two laws” and the Government should ideally be encouraging Sri Lankan companies to make profit (for which normal tax rates between a low of 14% and a high of 40% are applicable) and thereafter declare dividends and enjoy the same tax-free benefits. If the Government wants to level the playing field, Perera suggested a lower rate of tax on dividend income for non-nationals and a reduction in tax on Sri Lankans.
Attygalle however emphasised Sri Lanka needs foreign investments hence the concessions given whilst a fair taxation on locals was necessary as part of boosting Government revenue.
The forum also featured John Keells Holdings PLC (JKH) Chairman Krishan Balendra, Access Engineering PLC Chairman Sumal Perera, Hemas Holdings PLC Group CEO Kasturi Wilson, Expolanka Holdings PLC Group CEO Hanif Yusoof, Standard Chartered Bank Sri Lanka CEO Bingumal Thewarathanthri, 99X Technology CEO Mano Sekaram, PricewaterhouseCoopers (PwC) Director Charmaine Tillekeratne and SC Securities Ltd. Head of Research Charitha Gunasekere.
Strategic Partner of the Forum was Standard Chartered Bank, Technical Partner PwC, Capital Markets Partner SC Securities Ltd., Creative Partner Phoenix Ogilvy and Electronic Media Partner Ada Derana 24 whilst the venue host was the BMICH.
Pix by Ruwan Walpola
