Sri Lanka’s banks have made a chorus call to the government to completely remove or at least suspend the Debt Repayment Levy (DRL) slapped on them that gobbles up millions of rupees from their profits at a time when the bulk of the economy’s weight has fallen on them, in the aftermath of the Easter Sunday attacks.
Since the bombings on April 21, the government has come up with programmes to provide relief to various business sectors, particularly directing banks to provide moratoriums on loans taken by some of the sectors, as the attacks that killed 250 people and injured over 500 more dealt a lethal blow to businesses, which were already suffering from an erosion of consumer sentiment.
The government was quick to provide a relief package to the tourism sector stakeholders, who were the immediate casualty of the terror attack, by way of moratoriums on their capital and interest payments for up to one year.
During a recent meeting with Finance State Minister Eran Wickramaratne at the National Chamber of Commerce, the bankers requested Wickramaratne, who was a leading banker in his previous avatar, to reconsider the Debt Repayment Levy, as the banks have been compelled to take the full brunt of the economic fallout of the April 21 attacks.
The government proposed the Debt Repayment Levy of 7 percent, which Finance Minister Mangala Samaraweera termed as ‘Madamulana Badda’ in his 2018 budget. It was supposed to be ring-fenced to settle billions of loans said to have been taken by the previous Rajapaksa administration.
The levy, which came into effect on October 1, 2018, is applied in the same way to the financial Value-Added Tax and Nation Building Tax.
The banking sector currently pays over 60 percent of its profits as effective taxes, up from earlier 50 percent, making Sri Lanka perhaps the only or one of the few countries that has a very high effective tax rate on banks.
Interestingly, this tax rate is on par with the effective tax rate applied on sin industries such as betting, tobacco and alcohol.
In certain instances, some banks paid as much as Rs.600 million as Debt Repayment Levy during the quarter ended March 31, 2019, which comes to about Rs.3.0 billion a year from the profits of a single bank.
During the quarter ended March 31, 2019, the banking sector profits fell while the growth of a number of banks plateaued.
It was recently revealed that as much as Rs.33 billion arrears interest is due to the state and private sector banks from the National Treasury, on the senior citizen interest subsidy scheme introduced in 2015.