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Treasury Secretary Warns of VAT Increase if Public Servants’ Salary Demands Are Met

July 09, Colombo (LNW): Secretary to the Treasury, Mr. Mahinda Siriwardana, announced that fulfilling the salary increase demanded by striking public servants would require raising the current VAT from 18% to between 20% and 21%. He stressed that such an increase would be an undue burden on the public. Mr. Siriwardana made these comments during a discussion at the Presidential Secretariat today (08), chaired by President Ranil Wickremesinghe, regarding the demands of public service trade unions.

The discussion addressed the trade union actions taken by several public service unions and explored potential solutions to their demands. It was noted that while a salary increase is not feasible this year, there are plans to revise public service salaries in the 2025 budget, based on recommendations from an expert committee investigating salary disparities.

The Treasury Secretary highlighted that a salary increase of Rs. 10,000 for government employees would require an additional Rs. 140 billion annually, and an increase of Rs. 20,000 would necessitate an additional Rs. 280 billion.

To generate the required income, even with optimal management of current revenues, additional tax increases would be necessary. Specifically, he noted that to raise salaries by Rs. 10,000, the VAT would need to be increased by 2%. To meet the wage demands of the trade unions, the VAT would need to be raised by more than 3%. He emphasized that this is not feasible at this time, as the VAT is already at a maximum rate of 18%.

Mr. Siriwardana also explained that, due to the government’s efforts to stabilize the country’s economy, the Central Bank can no longer print money as it did before. Doing so would jeopardize the program with the International Monetary Fund.

Senior Advisor to the President on Economic Affairs, Dr. R.H.S. Samaratunga, remarked that while increasing public servants’ salaries again this year is challenging, the President has committed to allocating funds for this in next year’s budget. He also mentioned that a separate expert committee has been appointed to study and report on salary discrepancies.

The discussion included President’s Secretary Mr. Saman Ekanayake and a group of senior government officials.

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