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$1b IMF loan linked to more taxes
View(s):The Government is looking at a one billion US dollar standby loan from the International Monetary Fund (IMF) to tide over a looming economic crisis. Grant of this facility, a high ranking Government source said yesterday, would make it mandatory to heed to a string of conditions. They include revisions in key areas like the Nation Building Tax (NBT), personal taxation and Value Added Tax, the source said.The NBT was raised from two to four per cent in the 2016 budget proposal — but it was later stalled. Personal taxation limits were raised recently from Rs. 750,000 to Rs. 2.4 million. The Value Added Tax now stands at 11.5 per cent. These are likely to face an upward revision if the IMF facility is obtained.
The source said negotiations were underway and the amount to be obtained would be subject to approval by the Cabinet of Ministers. The source revealed that the loan has become imperative in the light of the current situation — and both President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe have acknowledged it.
International financial organisations have in recent months commented on Sri Lanka’s financial situation. A World Bank report on “Ending Poverty and Promoting Shared Prosperity,” released late last year and re-issued this week notes that low and declining revenues have critically impacted on Sri Lanka’s fiscal position.
The report says: “Sri Lanka now has one of the lowest tax revenue to GDP ratios in the world, reflecting a decline from 24.2 per cent in 1978 to 10.7 per cent in 2014. The major causes of this decline are low increase in the number of tax payers, reductions in statutory rate without commensurate efforts to expand the tax base, inefficiency in administration and numerous extensions. In particular, since the introduction of a value added tax (VAT) in 2002, successive changes in the tax regime have led to over 500 types of exemptions for a wide variety of goods.
“There are also over 40 broad types of exemptions on corporate and personal income tax depending on the source of income and the type of taxpayer. Administration is complicated by lack of co-ordination among entities collecting revenue as well as the Board of Investment which provides incentives. No tax expenditure analysis is conducted before or after the introduction of incentives…”