Failure by the new Government to remove tax on dividends despite pre-election promise of scrapping WHT has irked investors.
In the stimulus package announced last week by the Cabinet, only interest income up to Rs. 250,000 per month was exempted from the Withholding Tax (WHT), with effect from 1 January 2020. However prior to the election, presidential aspirant announced WHT along with Economic Service Charge (ESC) will be scrapped. Only ESC of 0.5% has been proposed to be done away with. The effective date of this amendment is yet to be announced.
The original announcement boosted investor and shareholder sentiment but failure last week to fulfil the pledge wholly is being viewed as a setback.
“Continuity of 14% WHT on dividend is a total deterrent for investors,” analysts said, adding that the rate itself was high.
The WHT on dividend was introduced as a revenue enhancing measure by the Yahapalanaya regime.
Analysts estimate 14% WHT nets around Rs. 9 billion, but its withdrawal would have had a greater beneficial impact in making the Colombo stock market attractive, and widen the capital market participation.
Other analysts said that the Government announced the removal of Capital Gains Tax of 10% on share transactions which is positive for the market. Effective date of this however is yet to be confirmed.
Rajapaksa also pledged to scrap Pay As You Earn (PAYE), but that, too, was not fulfilled.
The final decision was to increase the tax free threshold of the employment income of all public and private sector employees for the purpose of PAYE from Rs. 100,000 to Rs. 250,000 per month and the excessive personal income liable for income tax at the progressive rate of 6%, 12% and 18% for each tax slab of Rs. 250,000, with effect from 1 January 2020.