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Sri Lanka unveils tax reforms to boost economy

COLOMBO — Sri Lankan President Mahinda Rajapakse on Monday announced major tax reforms aimed at boosting the economy of the island as it recovers from the civil war that ended last year.

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 percent of gross domestic product from 8.0 percent this year.

He slashed import taxes on many capital goods, including on vehicles by 25 percent, and also rationalised taxes charged on imports and retail trade.

As part of foreign exchange liberalisation, he said foreigners would in future be able to buy into local unit trusts.

He offered tax breaks to the fisheries, agriculture and construction sectors as part of a broad policy to boost economic activity in the island after the 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.”

Rajapakse, who has a strong grip on power in Sri Lanka after overseeing the defeat of Tamil Tiger rebels, raised taxes on casinos, alcohol, share trading and international phone calls.

Sri Lanka’s tiny stock exchange has been one of the world’s best performers since the end of fighting.