Sri Lanka weighs hike in tobacco tax to help boost revenues

REUTERS: Sri Lanka plans to hike a tax on tobacco as it seeks alternative sources of income after two Supreme Court rulings delayed a plan for tax hikes to raise Rs.100 billion in revenue this year, the cabinet spokesman said yesterday.

The hikes were among the main requests of the International Monetary Fund (IMF), which approved a US $ 1.5-billion, three-year loan for the island nation in May, and a failure to raise revenue could jeopardise the government’s ambitious fiscal consolidation plan. Sri Lanka’s parliament on Tuesday said the Supreme Court had ordered it to stop consideration of a bill to raise value-added tax (VAT) because due process had not been followed in drafting the measure, a month after lawmakers suspended the tax hikes.

“We are now considering alternative revenue proposals,” the spokesman, Rajitha Senaratne, told reporters in the capital, Colombo.

“We are planning to increase tax on tobacco to raise Rs.18 billion.”

Senaratne, who is also the Health Minister, said the government would adopt the tax hike “very soon” after getting parliament’s approval.

Sri Lanka had planned to cut its budget deficit to 5.4 percent of gross domestic product (GDP) this year from last year’s figure of 7.4 percent, and has estimated it will achieve revenue of Rs.2.032 trillion in 2016, a jump of 38 percent from last year.

“So far there is no revision in the fiscal targets,” State Enterprises Deputy Minister Eran Wickramaratne told Reuters. “We still hope we can achieve them with alternative revenues.”
Sri Lanka’s state finances are in a shaky situation, partly due to heavy borrowing by the previous government during its nine-year tenure that ended in January 2015.