Financial Times

Govt. tax revenue seen falling
Government tax revenue is expected to fall as a result of the tsunami which could directly or indirectly hurt corporate earnings and consequently tax payments, C. T. Smith Stockbrokers (Pvt) Ltd. said.

The government had targeted increasing tax revenue to 17.2 percent of GDP from 15.6 percent now as one of its key measures in bridging the budget deficit.

"The target was in any event challenging at the time it was presented prior to the current disaster," the brokers said in a report on the economic effects of the disaster.

"The government will face problems in meeting tax revenue targets." An anticipated decline in corporate earnings due to the direct or indirect impact of the tsunami will accordingly reduce the tax revenue of the government.

The need to provide tax concessions to industries in affected areas could also result in low tax revenue collection. New initiatives by the government to widen the tax base will also not produce the desired expectations in 2005 due to the impact of the catastrophe, C T Smith Stockbrokers said.

Considering the increased public spending on rehabilitation activities in the affected fifteen districts, government expenditure is likely to increase, it said.

The brokers anticipate increased current expenditure and public investment to result in a higher budget deficit of around eight percent of GDP. The government said in its 2005 budget that it expects to curtail the fiscal deficit to 7.6 percent of GDP compared to 8.6 percent in 2004.

The brokers also said that while the anticipated reduction in tourism receipts on account of lower arrivals could put pressure on the current account deficit of the balance of payments, this could be countered by increased aid flows.

According to the budget, Sri Lanka is expected to record a $960 million deficit in the current account and an overall surplus of $170 million for 2005.

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