Tax bonanza to trigger consumption boost: Analysts

The recent tax bonanza will boost local consumption with more buying power, finance analysts have predicted.

One of the major sectors identified for positive early growth is telecommunications. There will be a significant drop in the total bill, as telecommunication (Telco) levy is to drop by 25 percent -- from 15 percent to 11.25 percent on voice revenue. At present, voice revenue contributes 40 percent of the total mobile top line. Data revenue is not liable for telco levy.

The construction industry is also expected to get a boost with the sector's income tax being halved from 28 percent to 14 percent. The government has also decided not to bring in Value Added Tax (VAT) on condominium property sales. The existing 15 percent VAT for units valued above Rs 25 million had caused most of the developers to scale back on new property launches amid a continued weak demand.

“Easing pressure on interest rates and positive private credit growth will improve affordability, thus assuring a recovery in demand in the residential segment,” a financial analysis prepared by a Colombobased business firm said.

Co- cabinet spokesperson and Minister Bandula Gunawardena told the Sunday Times the new government’s tax relief would increase the buying capacity of the people who were struggling due to the high amount of taxes on goods.

“During the Yahapalana government, people were forced to bear unreasonable taxes while there was no substantial economic growth. In keeping with the election pledge made by President Gotabaya Rajapaksa, we have decided to ease the tax burden on people,” Minister Gunawardena said, emphasising that the government would cover the revenue loss by other means such as effective usage of state resources and attracting more foreign direct investments.

A day after the government announced the tax bonanza on Wednesday, the Colombo Stock Exchange (CSE) saw a positive boost with total turnover exceeding Rs 2 billion in its daily business transactions. The CSE's Market Development Chief Niroshan Wijesundere said it was too early to predict market performances in various sectors such as construction and telecommunications, since clear-cut policies were ye to be put in place on a long-term basis.

During the Yahapalana government, people were forced to bear unreasonable taxes while there was no substantial economic growth. In keeping with the election pledge made by President Gotabaya Rajapaksa, we have decided to ease the tax burden on people."