Sri Lanka likely to go ahead with new income tax regime, but president “ready to discuss”
ECONOMYNEXT – Sri Lanka will likely go ahead with the newly gazetted personal income tax regime despite some opposition though the government is “ready to discuss” it, according to a statement by President Ranil Wickremesinghe.
“We have to take certain decisions reluctantly. However, we will reconsider these decisions periodically,” said Wickremesinghe in a televised address to the nation Wednesday October 19 evening.
“The government is ready to discuss this further,” he said.
Justice Minister Wijeyadasa Rajapakshe on Monday said the president, cabinet of ministers and opposition groups will all be part of discussions the government expects to hold on the best possible taxation system going forward
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Sri Lanka to hold discussions on best tax policy: Justice Minister
The new taxes, which saw a significant spike in personal income tax, were met with opposition by political parties and some professionals, while others expressed support.
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Wickremesinghe said in his recorded speech that there’s no alternative but to restructure Sri Lanka’s debt and that harder times are inevitable, a familiar refrain since his appointment as president.
If immediate action is not taken, he said, the country will go back to the era of queues.
Noting that Sri Lanka has been earning tax revenue primarily through indirect taxation, the president said the International Monetary Fund (IMF), which recently reached staff-level agreement with Sri Lanka on a bailout package, had called for the portion of direct tax to exceed the current 20 percent.
“There were discussions between the IMF and the Treasury to see if it was possible to limit taxation from those earning 200,000 rupees, but that was not possible. Eventually income tax was decided to be levied form people earning over 100,000.
“This has become a huge problem in the country. We cannot reach our desired goals without this tax system,” he said. The goal being 14.5 to 15 percent of GDP revenue by 2026.
“If we withdraw from this programme, we will not receive assistance from the IMF. Without the IMF certificatation, will not get support from international institutions like the World Bank, the Asian Development Bank and the countries that support us.
“If that happens, we will have to go back to the era of queues. We may have to face even tougher times ahead,” he said.
As Sri Lanka simply must obtain these loans, the government has to take certain decisions reluctantly.
“However, we will reconsider these decisions periodically.
“While successfully conducting the debt restructuring programme, we expect to move forward through the economic success achieved through a bountiful Maha season. This will reduce our economic pressure.
“We have also discussed measures to increase our foreign reserves. Once we have implemented these measures, we can move forward,” he said. (Colombo/Oct19/2022)
