Sri Lanka government is set to reverse the present tax structure back to the previous taxation system prevailing in 2019.
The ruling party has introduced the present system soon after coming in to power in 2019. abolishing and reducing income generating taxes for the benefit of a few under the cover of an economic stimulus package incurring heavy loss of revenue for the treasury.
The Finance Ministry will introduce relevant tax revisions as the present taxation has failed to bring expected results , Central Bank Governor Dr Nanadalal Weerasinghe told a media conference in Colombo oN Friday 29..
He added that the Central Bank will be taking necessary action to tighten the monetary policy while the Finance Ministry is to introduce policies and systems to generate revenue while placing social security nets.
Asa first step, the Finance Ministry will increase sales taxes as an immediate action to raise tax revenue as it has become a very difficult gigantic task after the present government’s action in 2019 to do away with a range of taxes .
The country has lost more than Rs.1 trillion in tax revenue with 33.5 percent decline in the number of registered taxpayers (corporate and individual) in the country during the past two years .
Finance Minister Ali Sabri noted that he has no choice but to hike the country’s sales tax as it faces its worst-ever economic crisis.
In an exclusive interview, Ali Sabry conceded the government made a mistake when it almost halved the rate of value-added tax (VAT) to 8% in 2019.
Mr Sabry says the nation needs $4bn (£3.2bn) over the next eight months to pay for imports of daily essentials.
He added that the current level of VAT is “definitely not sustainable” for a country like Sri Lanka that is dependent on the imports of essentials and said the rate should be raised to 13% or 14%.
He also admitted that a move to cut taxes in 2019 soon after Gotabaya Rajapaksa became president was wrong, adding that the government had waited too long before calling on the IMF for help.
Mr Sabry was also cautiously optimistic that the country will be able to start paying its international creditors again by next year,
Earlier this month, the Sri Lankan government said it would temporarily default on $35.5bn (£27.3bn) in foreign debt to make payments to overseas creditors.
Meanwhile, India has offered a $1.5bn credit line for fuel supplies and Mr Sabry said India has agreed to another $500m credit line in principle.
Sri Lanka is set to receive $400m-$600m from the World Bank immediately, which could be used for “cash transfers and building a social safety net for the vulnerable,” Mr Sabry added.