Tax burden likely to remain longer than expected

26 March 2024 06:15 am - 12 - {{hitsCtrl.values.hits}}

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Peter Breuer
PIC BY PRADEEP PATHIRANA

IMF Senior Mission Chief says tax is needed to fund essential services that government is providing
Asserts if everybody wants to continue enjoying common goods, then all have to make commensurate contributions
Points out current hardships are due to government running out of money and not having a strong income source

Sri Lanka, coming out of the economic crisis, has significantly taxed businesses and individuals alike and according to the International Monetary Fund (IMF), this burden is here to stay, at least for now.

While several attempts and concerns have been raised in this regard by a diverse section of the economy, the lender implied that it is imperative for Sri Lanka to continue to impose taxes at its current levels, so that the country does not collapse once again.

IMF Senior Mission Chief for Sri Lanka Peter Breuer noted that the tax burden, which is not entirely new to Sri Lanka, is needed, in order to fund the essential services that the government is providing.

“It is providing common goods for everybody. And if everybody wants to continue enjoying these common goods, then everybody has to make commensurate contributions and that would address one of the root causes of the crisis,” said Breuer, responding to a question at a press briefing held in Colombo last week, to announce the outcome of the second review under the Extended Fund Facility.

Breuer acknowledged that Sri Lanka is in a significant crisis and that real incomes have declined substantially. In dollar terms, Sri Lanka lost about one-sixth of its economic activity, while gross domestic product (GDP) went down 15 percent in dollar terms in 2023, relative to 2022.

“So, certainly, the people of Sri Lanka feel that hardship every day. Now, a key reason for why this happened is because the government ran out of money and could not access any financing because it didn’t really have a strong income source of its own and so, this is how the crisis started to happen,” Breuer pointed out.

Sri Lanka’s general revenue in 2022 was in the order of 8 percent and used to have a revenue of up to 20 percent of GDP in the 1980s.

Breuer went on to elaborate that Sri Lanka is a country that used to actually collect a lot more revenue, almost three times as much as it did in 2022. By international comparison, in the three years between 2019 and 2022, Sri Lanka’s general revenue averaged something like 9 percent, maybe 9.5 percent of GDP, compared to other emerging market countries, in the order of 26 percent.

While providing an update on the second review, the IMF said it welcomes Sri Lanka’s commitment to fiscal reforms.

The delegation asserted that continued progress towards the introduction of the property tax is critical, together with the revenue measures to meet the revenue mobilisation goals in 2025 and beyond. While revenue administration and anti-corruption efforts to boost tax collections are also key, maintaining cost recovery in fuel and electricity pricing will help minimise the fiscal risks arising from the state-owned enterprises.

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Comments - 12

joshua Tuesday, 26 March 2024 08:41 AM

IMF should insist on the country recovering the looted monies from the Rajapakshes without only concentrating on taxing the people. People have to pay for the sins of the greedy pigs

RCI - Root Cause Inc Tuesday, 26 March 2024 09:11 AM

From 1980 to 2008 the country spent a very large amount of USD to fight a internal war with the terrorist group known as LTTE who introduced indoctrinated suicide bombing cadres to the world. The fellow citizens (some in the diaspora) who supported the LTTE terror outfit also contributed to the problem Sri Lanka is facing today. Luckily for all of us the politicians are not bringing this factor into the limelight now that all communities are living very peacefully with all the hardships.

Suhada malli Tuesday, 26 March 2024 09:24 AM

Tax free threshold should be increased from the current Rs100,000 per month to Rs180,000 per month as an immediate measure to help the most affected urban middleclass. Introduce property / wealth tax and then reduce the VAT rate to 12.5% IMF should guide some other donor agencies to help by been guarantors to banks who will lend to automate export industries to use RPA and AI type technologies to increase our export incomes.

Jude Tuesday, 26 March 2024 09:41 AM

But if we're patient in 8 months we can get rid of the government!!

Amaran Tuesday, 26 March 2024 09:43 AM

Sir, please tell the government to REDUCE the PUBLUC sector staff. Most of them are having CUSION LIFE at the expense of private sector. Please tell the government to SACK those university students who engage in unruly protest. It is under waste of money spent on them.

Premalal Perera Tuesday, 26 March 2024 10:37 AM

How about cutting costs in government like pensions for corrupt politicians. And maitaining 5 useless former Presidents. The inefficiencies and corrupt practices. By the time the IMF medicine works, parts of the country will be dead or malnutritioned and a part would have left its shores. It would be a case of "operation successful, patient dead"

Have fairness and Work with the Citizens Tuesday, 26 March 2024 11:11 AM

You / IMF should find the root cause of the crisis instead of asking the citizens to endure the tax increases. Haven’t you guys see the colossal Arm Forces with senior officers enjoying enormous perks and salaries. Than the overblown political structure with lavish perks, security details, luxury vehicles and lodging these politicians who are asking the population for more taxes. The average family is suffering and stressed up to make ends meet whereas these government officials you listen to are having a ball of a time. Have some fairness here and work with the people too. Insist the government cut down on their expenses, retrieve all previous corruption cases and fast track in get back these monies. It will definitely assist in topping up the reserves soonest.

roni Tuesday, 26 March 2024 12:54 PM

May be till the middle of Oct 24. Not too long. The fuel queues at the time of the Goat were longer. We could also witness a propaganda stunt by Ranil Rajapakse to reduce the burden a month or two b4 elections. People would not and should not be fooled.

Citizens Tuesday, 26 March 2024 01:00 PM

Well you are making much for ADK to get resounding victories at all forthcoming elections. Thanks to IMF

Seeya Tuesday, 26 March 2024 05:07 PM

I dont mind the taxation on citizens for the greater good of the country, but it has to be fair. Everyone should pay taxes and should not be able to evade taxes and hide the money in other countries. This applies to all the public servants as well and the ill gotten money has to come back to circulation if not there is no point of burdening the general public by making them work for nothing in the end

Taxpayer. Tuesday, 26 March 2024 06:06 PM

Why can't advise government to reduce expenditure. over employment in state sector. Government employee ration is 14 per person. Election based salary increment and subsidy.

J de Silva Wednesday, 27 March 2024 04:47 AM

This IMF head is telling people to bare the tax burden, but he is not telling government to tighten their belts and cut the spending wastage by the government. Also he failed to mention president’s once a month joyrides with his cronies to foreign countries and ministers joyrides to foreign countries.

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Tax burden likely to remain longer than expected

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