Colombo (LNW): The government experienced a significant 43.5 per cent surge in revenue during the initial eight months, although the escalating budget deficit compelled a reinforcement of the revenue-centric fiscal consolidation strategy aligned with the International Monetary Fund (IMF), a report by Daily Mirror said.
To address this, the government plans to implement a Value-Added Tax (VAT) increase from the upcoming year, raising it from the current 15 per cent to 18 percent.
This decision, not included in the recently presented budget, also involves eliminating VAT exemptions, except for health, education, and select food items.
Recent Treasury data reveals that the government collected Rs. 1,826.62 billion in revenues from January to August, compared to Rs.1,272.78 billion in the corresponding period the previous year.
Taxes imposed and increased contributed significantly, amounting to Rs. 1,661.15 billion, marking a 47.8 per cent rise from the same period in 2022.
Under the IMF program, Sri Lanka elevated corporate income tax, personal income tax, and VAT. Additionally, it reintroduced taxes like withholding tax and introduced new levies such as the Social Security Contribution Levy, aiming to replenish its depleted finances.
Despite these measures, the failure to meet revenue targets suggests that a contracting economy struggles to achieve desired tax revenue, regardless of rate hikes, ultimately impinging on economic growth.
The budget for the upcoming year anticipates a 45 per cent revenue growth to Rs. 4,127 billion, primarily relying on the VAT increase and anticipated economic growth with the normalisation of imports.
Concurrently, expenditure rose by 38.2 per cent to Rs. 3,297.20 billion in the initial eight months.
Recurrent expenditure soared by 44.0 per cent to Rs. 2,941 billion, while capital expenditure and lending minus repayments increased by 3.5 per cent to Rs. 355.6 billion.
In this economic landscape, the eight-month budget deficit climbed to Rs. 1,470.66 billion from Rs. 1,112.49 billion in the corresponding period of the previous year.
Revised budget estimates for 2023 project an overall deficit of Rs. 2,402.0 billion (8.5 percent of Gross Domestic Product) and Rs. 2,401.0 billion (7.6 per cent of GDP) in 2024, excluding the Rs. 450 billion allocated for State bank recapitalisation.
