Capital Gains TAX on International Standard
The former Capital Gains tax system is outdated and no longer reflective of international good practice.
The Prime Minister Ranil Wickremesinghe has submitted a draft on new Capital Gains tax regime with technical assistance from the International Monetary Fund (IMF).
The Cabinet paper indicated that since the announcement by the Government of its intention to reintroduce a Capital Gains tax regime in March 2016, work has been undertaken to develop a system that “makes it consistent with current international good practice, with particular regard to similar regimes in the region.” However, it is not yet clear whether the Government will make provisions to exempt stock market returns. A timeline for the new tax has also not been announced.
“During the last few decades there has been a massive increase in the private capital in the country. The increase in prices of land attributable to large infrastructure developments carried out through Government funds have enabled the land owners to make significant Capital Gains free of taxation. This resulted in the increase in the inequality of income distribution,” the Cabinet paper presented by Wickremesinghe pointed out.
“Critics of the Government feel that only they can make progressive decisions, but the United National Party in this instance is trying to do the right thing. At the moment the emphasis is on indirect taxes, but for the system to be equitable, direct taxes have to be increased too,” he told reporters.
Prime Minister Ranil Wickremesinghe last Thursday in his speech in Parliament during the debate on the no confidence motion against Finance Minister Ravi Karunanayake announced the reintroduction of the Capital Gains tax.
“We will impose the Capital Gain tax. Some of you who have earned will have to pay the tax. Companies will have to pay. It will be the first time the rich will have to pay taxes,” the Premier said in Parliament.
Wickremesinghe earlier this year too warned of Capital Gains tax but following lobbying by the private sector, the Government dropped the idea. The Government has been criticized for failing to stick to policy consistently after Finance Minister Ravi Karunanayake told parliament there would be no new taxes after raising vehicle taxes this month.
