IMF implies new income tax law imperative to go forward

After pushing the government to raise the Value Added Tax (VAT) last year, it now appears that the International Monetary Fund (IMF) wants the new income tax bill to be presented to parliament before June this year to release the third tranche of the US $ 1.5 billion loan programme it has with Sri Lanka.
The IMF Executive Board in Washington DC has urged the Sri Lankan government to make arrangements to pass the new income tax bill to consider Sri Lanka’s request to complete the second post-programme review, which will most likely ensure the continuation of the 3-year programme with the fund which began in June 2016. 
The programme got delayed even last year primarily because the government failed to pass the Value Added Tax (Amendment) Bill, which raised the VAT rate from 11 percent to 15 percent. The Central Bank also missed a forex reserves target.  
“The Board is expected to consider Sri Lanka’s request for completion of the second review in June 2017, by which time the new Inland Revenue Act is expected to be submitted to Parliament as a prior action.  
The new law should pave the way for a durable fiscal consolidation based on revenue mobilization, a key pillar of the government’s reform programme,” the staff team said in a statement. 
Returning to the country after taking part in the G24 Finance Ministers meetings and the semi-annual World Bank/IMF meetings, Sri Lanka’s belligerent Finance Minister, Ravi Karunanayake belittled the IMF’s support but said the next tranche of the programme would come by 
mid June.  
“IMF gives petty cash and tries to get the maximum out, but we respect them for one thing. They have helped us to show that we are financially well run. That is the only dividend that we get. We don’t want the petty cash,” he told the press last week. 

Sri Lanka has so far received two tranches of the US $ 1.5 billion Extended Fund Facility (EFF) and the US $ 119.9 million third tranche was due on April 20.  
Commitment to continuous fiscal consolidation is a key condition under the 3-year programme with the IMF and the government is required to bring down its fiscal deficit to 4.7 percent this year before gradually bring the deficit to below 3.5 percent of GDP by 2020.
Meanwhile, the IMF staff team commended the authorities for resuming accumulating net international reserves as a corrective action for missing the end-2016 target. 
“This reserve accumulation should continue and help reduce Sri Lanka’s external vulnerability.” 
In March the staff team flagged off a host of imbalances in the country’s monetary, fiscal and external sectors and urged some decisive actions by the authorities to accelerate the reforms agreed on a number of State-Owned- Enterprises (SoEs), which weigh heavily on public finances.