Sri Lanka aims to increase taxes in the budget to ease the crisis – The Diplomat

pulse | Economie | South Asia

The Wickremesinghe government plans to more than double tax revenues to be able to cover expenses without having to print currency.

Sri Lanka’s president on Monday proposed more than doubling tax revenues as the island nation struggles to emerge from its worst economic crisis.

Unsustainable debt, an acute balance of payments crisis coupled with the lingering scars of the COVID-19 pandemic have led to severe shortages of essentials such as fuel, medicine and food, and soaring prices have caused severe hardship for most Sri Lankans.

President Ranil Wickremesinghe, while presenting the annual budget in Parliament, presented the country’s plight to shrinking government revenues and stressed the need to increase them.

Wickremesinghe said the country’s revenue has fallen dramatically to 8.3 percent of gross domestic product in 2021, which he said is one of the lowest in the world. He said his government has introduced revenue measures to correct the 2019 tax cuts on three occasions this year.

“These tax reforms will help raise revenues in 2023 and beyond, which will enable a move away from costly monetization (money printing) to cover government spending in the future,” said Wickremesinghe.

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According to statistics from the budget letter, the government expects to increase revenue from taxes to 3.1 trillion Sri Lankan rupees ($8.5 billion) from 1.3 trillion rupees in 2021.

The document shows that income tax will triple from 302 billion rupees ($824 million) to 912 billion rupees ($2.5 billion).

The economy deteriorated as the COVID-19 pandemic and the Easter 2019 bombings devastated tourism, a major source of foreign exchange. At the same time, in 2019, the previous government pushed through the largest tax cuts in Sri Lanka’s history.

Sri Lanka’s foreign reserves have dwindled to about $1.5 billion and the country does not have enough dollars to import basic necessities. Inflation has increased by more than 90 percent in recent months.

Sri Lanka has held off nearly $7 billion in external debt due this year pending the outcome of talks with the International Monetary Fund on a bailout package. The country’s total external debt exceeds $51 billion, of which $28 billion must be repaid by 2027.

The economic collapse triggered a political crisis and thousands of protesters stormed the official residence of the president in July, forcing Gotabaya Rajapaksa to flee the country and later resign.

Wickremesinghe said negotiations with the International Monetary Fund were progressing while the government was in talks with India and China on debt restructuring.

“We are confident that these discussions will lead to a positive outcome,” he said.

The budget vote will take place on November 22.

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