The Sunday Morning Business learns that plans are underway to remove the withholding tax (WHT) imposed on the interest paid to Non-Resident Foreign Currency (NRFC) accounts. This will be welcome news to many as the tax was seen as counterproductive to the accumulation of foreign exchange. As Sri Lanka suffers from rupee depreciation, it was ironic that the interest paid to NRFC accounts were subjected to a 5% WHT under the new Inland Revenue (IR) Act, which was passed in September, 2017 and came into effect from 1 April, 2018. When contacted to confirm the reports, Deputy Secretary to the Treasury S. R. Attygalle confirmed that discussions are underway but said that there is yet a long process to be followed. “We are discussing to remove WHT from these NRFCs. We have to go to the Cabinet for approval because at present the Act states that we have to impose WHT. “An act amendment should be made to remove this, and for that we have to go the Cabinet. However, there is still nothing concrete.” At a recent event, Deputy Minister of National Policies and Economic Affairs Dr. Harsha De Silva said: “I’m frustrated with these tax policies. I don’t see any reason why we should tax NRFC when we are having an issue with currency depreciation. The tax should be removed, and I am sure it will be removed.” Furthermore, a Central Bank official who wished to remain anonymous told The Sunday Morning Business that he was aware that discussions are ongoing to remove WHT from NRFC accounts and welcomed the move. Indian banks offer an attractive interest rate for NRFC accounts of Sri Lankans, which are exempt from taxes. India’s HDFC Bank offers a tax-exempt 3.16% interest rate, for a minimum deposit of $ 1,000. On the other hand, Bank of Ceylon offers a tax-imposed interest rate of 2.75% for a 12-month fixed deposit of $ 5,000, and Commercial Bank offers 2% interest. However, Attygalle said that it is unlikely that the tax has resulted in outflows of NRFC deposits from Sri Lankan Banks. “I don’t have statistics at the moment to show that people have taken money out of NRFC accounts or that they are prevented from depositing. Money is not going out from the NRFC. Money is going out from treasury bills and bonds. That is why we have taken out the WHT from treasury bills and bonds. Similarly, if there is an outflow of NRFC we have to think about the NRFC accounts, but I don’t see that happening.” NRFC accounts were originally flexible enough to allow account holders to enjoy tax free interest but are now cloaked in several stiff regulations, so much so that an air ticket is required to make a deposit or a withdrawal. (MT)