Government bets on economic turnaround to bring additional revenues in 2024

• FinMin Secretary says budget 2024 sets the stage for growth from stabilisation 
• Govt. appears to be relying on VAT rate increase and widening of VAT base to reach revenue targets
• Officials also bank on largely normalising imports and corporate earnings to bring in expected revenues 

 While the increase in Value Added Tax (VAT) is expected to do the heavy lifting for the government to reach its revenue targets next year, officials also appear to be betting on the turnaround of the economy from a contraction to a growth, and the normalisation of imports.

Speaking at a post-budget forum organised by the Centre for Banking Studies of Central Bank, the Secretary to the Treasury Mahinda Siriwardana said the focus of the 2024 budget is directed towards a shift from stabilisation to a growth-oriented strategy. 

Sri Lanka’s economy contracted 7.8 percent in 2022 and 7.9 percent in the first half of 2023. All multilateral agencies, along with the Central Bank and the Treasury, anticipate a positive turnaround in economic growth next year.

The budget presented in parliament for 2024 on Monday projected to generate an incremental Rs.1,224 billion from taxes of which Rs.859 billion is to come from the higher VAT and the removal of almost all exemptions. 

According to Deshal de Mel, Advisor to the Finance Ministry, much of the heavy lifting of the revenue in the budget would come from the VAT rate hike and the base increase, the latter of which is coming from the removal of a large number of exemptions. He also expects the largely normalizing imports with the anticipated lifting of remaining controls including the vehicles to add import related VAT and other taxes to further strengthen State coffers. 

According to him, the Finance Ministry also anticipates the current recovery seen in economic activities to accelerate further next year, bolstering State revenues. 

He further expects an provement in corporate earnings, driven by declining interest rates, which, in turn, is expected to contribute to the generation of higher tax revenues.