Sri Lanka President hints on possible wealth tax for economic, social stability

ECONOMYNEXT – Amid widening gap between the rich and the poor in Sri Lanka, the island nation will have to go for higher taxation including on wealth, President Ranil Wickremesinghe said on Friday while delivering a keynote speech at an economic forum.

The crisis-hit country is struggling with lower state revenue and higher government expenditure with the 86 cents of each rupee of tax revenue is spent on state sector wages and pensions.

Tax rates are expected to rise under an International Monetary Fund (IMF) programme in the future.

Wickremesinghe said the gap between haves and have not have been widening in the last 10 years and that has resulted in more vulnerable poor in the country.

“This also mean, we will have to have higher taxation, even taxation on wealth,” the president told at the ‘Reform Now’ forum by Advocata Institute, a Colombo-based economic think tank.

“We have to resort to those measures first for economic recovery and second for social stability. In any plan for recovery, we have to keep this in mind.”

Since Wickremesinghe became the prime minister on May 12, he has raised the Value Added Tax (VAT) to 12% from the earlier 8%. The VAT was reduced to 8% by Wickremesinghe’s predecessor Gotabaya Rajapaksa from 15% in December 2019 soon after he became the president. The move is one of the main reasons for the current economic crisis, economists say.

Wickremesinghe has been looking for fiscal reform to boost revenue and reduce government expenditure under a four-year IMF deal possibly from next year.

The crisis-hit island nation is struggling to finance its fuel and gas imports after its foreign currency reserves almost fell to zero after the central bank printed trillions of rupees to bridge the state revenue fall. The money printing has already resulted in around 60% inflation year-on-year. (Colombo/Aug 05/2022)