{"id":135322,"date":"2023-06-30T16:01:20","date_gmt":"2023-06-30T23:01:20","guid":{"rendered":"https:\/\/www.lankaweb.com\/news\/items\/?p=135322"},"modified":"2023-06-30T16:01:20","modified_gmt":"2023-06-30T23:01:20","slug":"epf-asked-to-pay-30-tax-unless-it-participates-in-domestic-debt-restructuring-process","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2023\/06\/30\/epf-asked-to-pay-30-tax-unless-it-participates-in-domestic-debt-restructuring-process\/","title":{"rendered":"EPF asked to pay 30% tax unless it participates in domestic debt restructuring process"},"content":{"rendered":"

By Sanath Nanayakkare Courtesy The Island<\/strong><\/em><\/span><\/h2>\n\n\n

Banks, which pay taxes over 50%, least affected<\/h3>\n\n\n\n

If the Employees\u2019 Provident Fund (EPF) and other pension funds did not wish to participate in the proposed domestic debt restructuring process, there will be an application of higher annual income tax of 30%, Central Bank Governor Dr. Nandalal Weerasinghe said yesterday. The EPF is currently taxed at the rate of 14%.<\/p>\n\n\n\n

Dr. Weerasinghe said so, addressing the media in Colombo.Finance Ministry Secretary Dr. R. Samaratunga, Treasury Secretary Mahinda Siriwardena were also present. Dr. Weerasinghe said, Banking sector has already borne a significant burden of the fiscal adjustment and the economic crisis in several ways. The banking sector has been paying higher tax rates than other corporations.<\/p>\n\n\n\n

The total tax burden on the banking sector, which is serving 57 million customer deposits, is more than 50%. Through high tax payment, the banking sector is helping the government\u2019s fiscal consolidation efforts. Further, banks gave moratoriums and faced the brunt of non-performing loans during the Covid-19 pandemic. So, any disturbance to financial system stability could be costly. And disruptions to the banking system will adversely impact the effective transmission of monetary policy. So, the main effort is preserving the 57 million customer deposits in the banks and letting no room for a bank run.<\/p>\n\n\n\n

In contrast, superannuation funds are subject to a tax of 14%. It has been proposed for superannuation bonds to be exchanged for longer term maturity T-Bonds at a coupon rate of 12% until 2025m which will be 9% minimum beyond 2025. So, there is at least 9% return on EPF funds ensured on a long-term basis while there will be no reduction on the current balance of any individual\u2019s EPF. In the event it has to be lowered below 9%, the Treasury has agreed to fill the balance.<\/p>\n\n\n\n

If superannuation funds don\u2019t want to take part in this process, they will be liable to be taxed at 30% instead of the current 14%.\u201d<\/p>\n\n\n\n

The minimum participation requirement for EPF is set at 50% for outstanding bonds maturing in 2023 and 100% of bonds maturing between 2024 and 2032, according to CBSL.<\/p>\n\n\n\n

 Speaking further the CBSL Governor said:<\/p>\n\n\n\n

 What we expect from this is to bring the government debt stock to a sustainable level within 10 years as per the agreement with the IMF. The number one benchmark in this context is reducing the public debt to GDP to 95 % from 128%. Secondly, the Gross Financing Needs (GFN) of the government needs to be reduced to below 13% of GDP from 34.6 % of GDP between now and 2032. Thirdly, Foreign Debt Servicing needs to be reduced to below 4.5 % of GDP from the current 9.4 % of GDP within the same period. If these targets are achieved, it should help close external financing gaps of USD 16.9 billion. For this, we need to restructure loans obtained from official bilateral creditors such as Japan and China.<\/p>\n\n\n\n

Then there is the need for restructuring international sovereign bonds (ISBs) and negotiations are underway for these two elements. Our foreign exchange debt service target is set at 4.5% max. of GDP in 2027-2032. Thirdly, it is important to restructure domestic debt in some form and that is why we are presenting a plan to execute it. One available option in optimizing government debt is to increase taxes and improve the Primary Account Balance. These measures have already been taken. So, the remaining option is restructuring government debt stock through optimization of Treasury Bills and Treasury Bonds. At present Treasury Bill stock is worth LKR 4.1 trillion. 62.4 % of it is owned by the Central Bank of Sri Lanka (CBSL). CBSL has already agreed that its holdings of Treasury Bills would be converted to Treasury Bonds because this will help reduce gross financing needs of the government. And there are<\/p>\n\n\n\n

Treasury Bonds worth of Rs. 8.7 trillion of which 20.5% is from superannuation funds including the Employee Provident fund (EPF); 36% from the banks and the balance from insurance funds and other private funds. So, we are looking at the best solution which can protect the banks, depositors and the EPF. That\u2019s why CBSL has agreed to take part in these domestic debt optimization negotiations,\u201d Dr. Weerasinghe said.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Sanath Nanayakkare Courtesy The Island Banks, which pay taxes over 50%, least affected If the Employees\u2019 Provident Fund (EPF) and other pension funds did not wish to participate in the proposed domestic debt restructuring process, there will be an application of higher annual income tax of 30%, Central Bank Governor Dr. Nandalal Weerasinghe said […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102,193],"tags":[],"class_list":["post-135322","post","type-post","status-publish","format-standard","hentry","category-economy","category-imf-bailout-package"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/135322","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=135322"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/135322\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=135322"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=135322"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=135322"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}