By: Staff Writer
Colombo (LNW): The International Monetary Fund (IMF) expects a property and inheritance tax that is currently in the planning will be a key source of additional revenue for the government in the year 2025.
It welcomes the Sri Lankan authorities’ commitment to increase revenues and signal better governance by adopting needed tax measures, strengthening tax administration, and actively eliminating tax evasion.
Maintaining cost recovery in fuel and electricity pricing helps mitigate fiscal risks arising from state-owned enterprises.
Further strengthening the social safety net remains critical to protect the poor and the vulnerable. While inflation has decelerated faster than expected, continued monitoring is warranted to help anchor inflationary expectations and support macroeconomic stability.
Property tax is something that is in the programme, but not quite yet, because it’s something that takes a lot of time to put into place, and it is, in fact, important for the Sri Lankan authorities to make preparations for that,” IMF Senior Mission Chief for Sri Lanka Peter Breuer told a virtual press briefing recently.
He also said that the IMF is extending technical assistance in this regard.“So, it’s important to get started with it. But it will take some time for that to become effective. And it’s envisaged that, in 2025, property tax would be a key source of additional revenue in that year,” he added.
According to the programme documents, Sri Lanka has assured the IMF to revamp the property tax system and introduce a wealth transfer tax by 2025.
“In particular, we will introduce a nationwide real property tax and adjust the system of transfers between the central and provincial governments.
We will also introduce a gift and inheritance tax with a tax-free allowance and minimal exemptions. Preparatory work for these tax reforms will commence by mid-2023, supported by IMF technical assistance,” IMF Programme documents made public in March said.
No comprehensive study has been conducted on the Sri Lankan property market. The majority of property transactions in Sri Lanka involve inheritance and gifts.
IMF approved Program performance at end-June was satisfactory, with all quantitative performance criteria for end-June met, except the one on expenditure arrears.
All indicative targets were also met except the one on tax revenues. Most structural benchmarks were either met or implemented with delay by end-September 2023.
Notably, the authorities published on time the Governance Diagnostic Report. Sri Lanka is the first country in Asia that has undergone the IMF Governance Diagnostic exercise.
Progress is still ongoing on the revenue measures to support the fiscal consolidation during 2024 in line with program parameters.
