Colombo, April 17 – Sri Lanka will allow assets stashed abroad to be brought back with the payment of a ‘remittance fee’ or no tax if the funds are invested in dollar-denominated government debt under proposed less restrictive exchange control.
The funds, however, should not have been acquired by criminal activities or have anything to do with terrorist finance, the EconomyNext reported.
Sri Lanka enacted a draconian exchange control act in 1953 barely two years after a soft-pegged central bank was set up with money printing powers, abolishing a currency board that had kept the exchange rate fixed, inflation low and allowed free flow of capital.
Money printing by the soft-pegged central bank – also called a ‘half-baked’ exchange rate regime by some economists – led to balance of payments trouble barely two years after the agency was set up.
Citizens then started to convert money to protect the value of their savings being destroyed by the central bank and government through currency depreciation and inflation, or withhold earnings abroad to protect themselves from the central bank.
The exchange controls themselves prompted citizens to hoard money abroad, understating real profits of businesses at home and depriving the country of investment capital and the government of tax revenue.
A proposed ‘foreign exchange act’ will allow funds stashed abroad to be brought back without paying any additional income tax or any tax other than a remittance tax that will be specified in the future.
If the funds are invested in Sri Lanka Development Bonds, a dollar-denominated government bond, no tax will be charged.
Unlike countries like China, Hong Kong and several other East Asian nations, there is no serious efforts being made in Sri Lanka to change the so-called ‘half-baked’ exchange rate regime, and the country regularly runs to the International Monetary Fund after bouts of money printing.
The IMF was set up by US interventionists after World War II when the world was gripped by resurgent Neo-Mercantilist false doctrine and there was a belief that a state could print money and control exchange rates at the same time, with a little help from the Fund from time to time.