Sri Lanka seeks to raise $685 million from a tax increase
COLOMBO, May 1 (Reuters) – Sri Lanka is seeking to raise Rs100 billion ($685.6 million) in revenue in 2016 by increasing value-added tax (VAT) and new taxes effective from Monday, Finance Minister Ravi Karunanayake said late on Sunday.
VAT will rise to 15 percent from 11 percent, and will be imposed on private sector health services as the government struggles to reduce a ballooning budget deficit amid a debt crisis.
The move is part of the government’s plan to meet a repeated request to raise revenue from the International Monetary Fund (IMF), which on Friday reached an agreement with Sri Lanka for a $1.5 billion bailout to help the island nation avert a balance of payments crisis.
"It will be Rs100 billion, or 0.75 percent of GDP (gross domestic product)," Karunanayake told reporters in Colombo. "We consider this as a corruption tax due to the mismanagement by the previous regime."
He said the IMF loan was a step of "abundant caution", adding that Sri Lanka was not facing a balance of payments crisis.
The island nation’s budget deficit almost doubled to 7.4 percent of GDP from an original forecast of 4.4 percent due to heavy debts incurred by the previous government headed by Mahinda Rajapaksa.
Revenue increased by 13.1 percent of GDP last year, compared with 11.5 percent in the previous year, mainly due to increased revenue from vehicle taxes. The government is aiming for a 12.7 percent rise in tax revenue this year.