Sri Lanka’s new government on Friday (Nov 20) used its first full budget to lift taxes on foreign investors and vowed to reverse “isolationist” policies of the former administration, which faced international censure over its human rights record.
Finance Minister Ravi Karunanayake said the previous administration of strongman Mahinda Rajapakse had left Sri Lanka “on the brink” of receiving Western sanctions by refusing to address rights issues.
“The foreign policy of Sri Lanka was blemished and we were on the brink of receiving stringent economic sanctions and almost left to fend for ourselves,” Karunanayake, said while presenting the 2016 budget in parliament.
The finance minister laid out several foreigner-friendly proposals including the lifting of restrictions on foreign ownership of land.
Former president Rajapakse banned foreigners owning property in November 2012 and ordered that any real estate leased to non-nationals will be subjected to a 100 per cent tax payable upfront for the entire duration of the lease.
The new government proposed removing the lease tax on non-nationals.
The finance minister also announced removing exchange control laws that had been an impediment to direct foreign investment.
He said foreign investment approvals will be granted within 50 days under a new regulatory body known as the Agency for Development.
“This will certainly be a game changer in promoting investments,” he added.
He reintroduced a resident visa scheme for foreign nationals who wish to make Sri Lanka their second home.
Karunanayake also used his speech to attack Rajapakse on numerous fronts including “adopting an isolationist foreign policy” and being guilty of large-scale corruption and cronyism.
Rajapakse, along with his family, faces several investigations, including allegations of murder.
“Law and order of the country was turning medieval and the country was gradually converting to a feudal entity,” the minister said.
Karunanayake criticised the former president for not ensuring accountability for atrocities committed by both sides in Sri Lanka’s 37-year civil war, although he gave him credit for ending the conflict with the crushing of Tamil Tiger rebels.
Karunanayake also used Friday’s budget to raise the threshold for paying personal tax three-fold, reduce corporate income tax and announce an exemption for small businesses such as corner shops.
He reduced levies on hotels and the travel industry, as Colombo looks to revive the key growth sectors following the end of the conflict that claimed 100,000 lives between 1972 and 2009.
But he sharply increased taxes on gambling and casinos as well as motor vehicles and liquor, favourite targets of successive governments to raise revenue.
Sri Lanka still needs huge foreign and local loans to bridge the budget deficit for the calendar year 2016, estimated at 5.9 per cent of the country’s GDP, down from 6.0 per cent in 2015.
“At present, the public debt to GDP ratio stands at around 72 per cent, which is high, by accepted international standards,” the minister said. “Our focus and strategy would be to comply at all times.”