The purpose in starting NRFC accounts was to encourage Sri Lankans having foreign currency to invest in their own country. The country needs the dollars badly.
These accounts were flexible with the account holder being able to remit his money to anywhere in the world. If he wanted he could cash them into rupees. He could add more dollars to his account (remember we need the dollars!). The interest earned was also were kept tax free. It should be noted that the interest on foreign currency is much lower than what is earned on rupee accounts. In actual terms the interest earned is a trifle.
This Government for some strange reason started clamping down on NRFCs and brought in a lot of hard regulations almost stifling the flexibility enjoyed before. To withdraw money from NRFCs now the depositor must show an air ticket. Same when depositing! Finally, the Government, breaking the initial covenant of being tax free, decided to tax NRFC accounts. The rate of tax is immaterial, it is a matter of time when the rate is pushed up by desperate governments. It has been proved once again that the undertakings given by Sri Lankan governments cannot be trusted and drastic policy changes happen from minister to minister.
It has not taken long to see the negative results of these policies.
The country is now desperately short of dollars. You must think long and hard before bringing your dollars to this country. In desperation some banks are offering even 6% for US dollar accounts. I suppose the banks lend the dollars to the Government at even a higher rate. Eventually when the Government has to repay, they will need to pay a lot more! With whose money? Taxpayer of course!
Meanwhile our neighbours have observed the recurring lunacy of our policy makers. India is now offering Sri Lankans Non Resident Status for their dollar deposits in India, with many other benefits added. This Government, especially its finance management, now represents a fashion show, glamour and make-up covering up a huge intelligence deficit.
All this policy from high up public servants enjoying perks of office, and paying no taxes themselves!
R. De Alwis