The government is exploring the possibility of amending the existing tax mechanism and it will be negotiated with the International Monetary Fund (IMF) in the first review of $ 2.9 billion EFF program in June this year.
Thousands of Public sector workers have demanded the government roll back high taxes imposed as a precondition to unlock the US $2.9 bn IMF loan.
The Government and the IMF will review the programme every six months. The first review will take place in June.
The government has already focused attention on amending the existing tax mechanism and the Treasury is already in the process of preparing amended proposals, President Ranil Wickremasinghe disclosed in parliament recently.
Further, intellectuals and economic experts have already submitted their views in this regard, which we hope to discuss, and reach an agreement,” the President said in his special address in Parliament on the Extended Fund Facility which the IMF Executive Board approved on Monday.
“We are discussing with the IMF to include these tax reforms in our plans at the review in June. In addition, we are discussing the other policy reforms which we think are necessary at present,” the President added.
“Some people try to portray that these issues can be solved through confrontations.
However, these problems have to be solved through caution, care and wisdom,” said President Ranil Wickremesinghe in an apparent response to continuous protests in the country by trade unions against the new tax regime which they say is unbearable.
On Monday IMF Senior Mission Chief for Sri Lanka Richard Breuer said at 8.6% of GDP, Sri Lanka is amongst the countries that collects the least amount of fiscal revenue in the world.
The President also told Parliament that the IMF-approved plan should be implemented and completed in four years.
“However, depending on our strength and determination, we should be able to finish it in three to three and a half years. Let’s give it a try. Let us put in the effort,” the President told the House.
Sri Lankan President Ranil Wickremesinghe said that if the country continues according to the existing plan, Sri Lanka can rise out of bankruptcy shortly.
He added that the government is committed to securing the financial system that was on the verge of collapse, noting that the government expenditure was controlled, while measures were taken to increase tax revenue.
Tax revenues decreased due to decisions taken in the past. As of 31st December 2019, 1.6 million businesses, companies and individuals paid taxes.
However, by December 2021, the number of taxpayers decreased to five hundred thousand. Government tax revenues fell to an all-time low.
Realizing the destruction this caused to the economy of the country, many institutions and organizations requested to revert to the tax system which existed in 2019,” he added.
“However, it is the same people who requested such tax policies, who are criticizing the present tax regime.
The President said that if PAYE tax is abolished, the country will lose 100 billion rupees, and if the tax limit is raised to two hundred thousand rupees, the economy will lose 63 billion rupees.
“The total amount that will be lost is 163 billion rupees. We are presently not in a position to lose this income,”he noted
However the Finance Ministry top officials are now considering other tax revenue options without burdening the middle class and the poor while focusing attention on alternate revenue enhancing proposals.
These proposals have been put forward by economic and financial experts and employees associations without heeding to the demands of politically motivated trade union leaders.