Sri Lanka’s budget undergoes complete overhaul
Sri Lanka’s budget preparation for the next financial year 2018 is set for a complete overhaul, doing away with ad hoc taxes following the government’s failure to implement a large chunk of previous budget proposals and new tax revisions owing to legal procedural issues in the past two years.
At least 22 proposals in the 2016 budget are yet to be implemented and almost all budget proposals have been amended during the committee stage budget displaying the dismal performance of the Finance Ministry, budget analysts said.
Reportedly less than 40 per cent of the capital expenditure has been used by ministries and some of the ongoing projects are no longer beneficial politically for the government and economically for the country.
Unplanned ad hoc tax incentives in the form of various tax holidays, reliefs and concessions, duty waivers, etc have eroded and narrowed the tax base.
The tax loss is estimated to be around 1.35 per cent of annual GDP. Narrow tax base and coverage; the total number of taxpayers being about 3 per cent of the population and increase in allowable expenses in computing statutory income and profit were among the impediments towards raising revenue at present.
To boost revenues, Sri Lankan governments have often instituted ad hoc or one-off taxes, but these have not helped in terms of sustainable collection, and have often made the system more complex and compliance enforcement more difficult.
Under this set up the Cabinet Committee on Economic Management (CCEM) has decided to direct the Treasury to finalise financial strategies in April and make arrangements for Budget preparations in May, official sources revealed.
Final decisions on tax incentives, measures on ease of doing business and other structural changes will be announced in May this year in accordance with an agreement reached at a top level meeting attended by IMF and Sri Lankan officials, a senior state official who wished to remain anonymous told the Business Times.
A special 3-member committee headed by Minister Sarath Amunugama has been appointed to discuss and report the structure of the Budget 2017. The other members of the committee are Central Bank Governor Dr. Indrajit Coomaraswamy and senior advisor to the Prime Minister R. Paskaralingam.
It was emphasised that the revenue and expenditure of the government should be managed effectively in 2018 and 2019.
The budget process is to focus attention on moving away from input-based budgeting to budgeting linked to outputs and outcomes and it will be consolidated by the Finance Ministry’s National Budget Department.
These changes are likely to include 3-year rolling targets for all government ministries, departments, institutions and schemes.
The IMF has been pushing for better tax collection and a simplified tax code, and believes that comprehensive reform is needed if the country is going to effectively deal with its fiscal shortfalls.
It forecasts that revenues as a percentage of GDP will fluctuate between 12 and 13 per cent from 2015-16, and that the ratio will rise to 13.1 per cent in 2019 and 13.6 per cent in 2020.
| The controversial Tax Bill | |
The proposed Tax Bill, said to be drafted by the IMF, has drawn strong opposition from many quarters. Here are some of the proposals:
Incentive Schemes for SMEs who invest in the period 2017-2019, as outlined in the new tax regime taking the Government’s tax policy into account. Broaden the income tax base by “removing excessive tax incentives and/expenditures” to increase Government revenue, leading to the removal of the tax concessions offered by various agencies and under various regimes which are termed “ad-hoc” and “unproductive”. All income tax incentives “will solely be based on the investment made on the capital assets, employment generation and the area in which the investor invests”.
INCOME FROM BUSINESS Shall include:
INCOME FROM INVESTMENT Shall include:
EXEMPT INCOME
|