COPF Chair cautions unrealistic revenue expectations could kill consumption

• Says burden on revenue too much; VAT hike likely to hit disposable income
• Calls for improved transparency on how tax will be collected

Despite the government’s presentation of ambitious plans in the 2024 budget, banking on the expected economic

recovery, senior economist, opposition lawmaker and Committee on Public Finance (COPF) Chairman Dr. Harsha de Silva suggested yesterday that the outlined path is unrealistic.

Commenting on the revenue expectations, which have raised many an eyebrow, due to the proposed strategies not tallying with the outcome sought, de Silva cautioned that the overall consumption is going to take a massive hit. “I think the burden on revenue is too much that it is going to reduce consumption … you are pushing consumption down and disposable income is going to fall,” he said, addressing the third South Asian Actuarial Conference in Colombo yesterday.

Making reference to the proposed Value-Added Tax (VAT) increase to 18 percent, form 15 percent, de Silva said it could negatively affect the disposable income of the people, thereby consumption.
He also highlighted the absence of transparency in the budget proposals, particularly regarding the methods for collecting certain taxes.

The current government takes pride in bringing inflation down to single digits after it spiraled out of control last year, due to the severe mismanagement of the economy under the Presidency of Gotabaya Rajapaksa. 
Although inflation has contracted, the cost of living has moved in the opposite direction. “There are no fuel ques and shortages. We appreciate that. This is good. But the new equilibrium is very different from the old equilibrium. 

Before a household with four members needed an average of Rs.90,000 to manage their expenses for a month. Now they would need about Rs.175,000 at least,” de Silva pointed out.
Meanwhile, he called for more budget transparency and inclusion of detailed information, particularly making a reference to the annexures to the budget speech. 
A case in point is the vague reference to the removal of VAT exemptions. The clarity regarding goods and services exempted from VAT remains uncertain until the official gazette is published. (SAA)