ECONOMYNEXT – Sri Lanka will suspend an investment promotion law that gives sweeping tax breaks to companies and the budget is expected to show a surplus before interest costs by 2018 under a program developed with the International Monetary Fund, a media report said.
The Sunday Times newspaper said the Board of Investment Act will be suspended a series of ‘prior actions’ running up to an IMF deal. However some ‘profit based tax holidays’ will still be available for investors the report said.
A reform-heavy three year Extended Fund Facility with the IMF is expected to be approved in early June, if a preliminary deal is agreed this month.
Though the central bank will get about 1.2 billion dollars to boost revenue, the real benefit to the country will come from the program itself which will boost revenues and stabilize the economy, analysts say.
The deal targets a 5.4 percent of gross domestic product budget deficit (659 billion rupees) in 2016.
The government is expected to generate revenues of 1,031 billion rupees by the third quarter of 2016 and primary deficit (budget deficit before interest costs) of 71 billion rupees, the report said.
By 2017, the primary deficit should be 0.2 percent of GDP and in 2018, it should turn to a surplus of 0.3 percent of GDP.
The government will also have to come up with a cabinet approved plan with time lines to deal with state enterprises which are a burden to the people, including a repayment strategy for SriLankan Airlines.
Outstanding loans of state enterprises will have to be certified by the Auditor General, the report said.
A new income tax law will be introduced.
In 2016, 58 billion rupees of arrears to various ministries will have to be settled. These included a 24.1 billion rupee loans owned by the ministry of highways to National Savings Bank.
Other arrears included 7.8 billion rupees at Ministry of Home Affairs for unspecified projects, Ministry of Irrigation (3.0 billion rupees for Gin and Nilwala River projects and 1.58 billion for Yan Oya project), Ministry of Disaster Management 1.52 billion and a 7.95 billion rupee arbitration payment to Prima.
Sri Lanka is raising value added tax to 15 percent from 8 and 11 percent from May 02, with some items which are now exempt also coming under the net.
Prime Minister Ranil Wickremesinghe’s attempt to spread the tax burden to richer sections of society by imposing a capital gains tax was shot down by by stock market players.
President Maithripala Sirisena this week added more confusion by saying that he will not allow the value added tax to burden the people. This however may be a reference to exempt items.
Sri Lanka’s politicians increase spending but shirk from the responsibility of raising the money transparently from taxes and instead borrows for consumption or prints money, which pushes inflation up and depreciates the currency. (Colombo/Apr20/2016)