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Sri Lanka hopes to keep budget deficit to 5.4-pct of GDP with new taxes
Mar 05, 2016 18:53 PM GMT+0530 | 2 Comment(s)
ECONOMYNEXT - Sri Lanka hopes to stabilize the economy and trim the budget deficit to 5.4 percent of gross domestic product by hiking sales taxes and suspending for one year income tax cuts proposed in a budget for 2016.
In a budget for 2016, the deficit was planned at 740 billion rupees (5.9 percent of GDP) but there was doubts over the target, after a 499 billion deficit planned for 2015 deteriorated to 690 billion rupees in 11 months.
Prime Minister Ranil Wickremesinghe had presented proposals at a special session of the cabinet of ministers to raise new revenue and keep a check on spending, which could reduce the budget deficit to around 679 billion rupees next year, EconomyNext learns.
Sri Lanka wants to raise Value Added Tax to 15 percent, eliminate the current two-band structure and end exemptions including to telecoms, education and health services.
Nation Building Tax to be kept 2 percent, but to remove exemptions to areas like, power lubricants and telecoms.
There was also a proposal to charge capital gains tax on land and shares. However it is not clear whether all the proposals will be implemented, since some ministers were not happy with taxes on shares, sources said.
Corporate and individual income tax will be kept broadly at pre-budget level, but there was a proposal to tax all other companies at 17.5 percent, slightly higher from an earlier proposal to tax them at 15 percent.
However there is expected to be resistance from opposition ministers to reducing the threshold on personal income tax as they would then have to pay taxes, sources said.
All members opposed moves by Finance Minister Ravi Karunanayake to end tax free cars to them in November.
The cabinet paper has said that large liabilities in state enterprises and losses as well as tougher global economic conditions required higher tax revenues to keep the economy stable.
Analysts warned in early 2015, that a hike in state salaries and subsidies would de-stabilize the economy unless interest rates were raised more revenue generated.
The central bank however printed money to keep interest rates down and finance the deficit, making the rupee collapsed to 145 to the US dollar from 131.
The government has to either charge, taxes, borrow or print money to pay higher salaries and subsidies. Of all the options taxes are the least harmful.
Even a 10 percent hike in value added tax raises final prices by only 10 percent, but the rupee has already fallen from 131 to the US dollar to 145, destroying real salaries and past savings.
However due to hardcore Mercantilism which is taught as 'economics' from a young age analysts say it is possible in Sri Lanka to get away with printing money, generating inflation, currency depreciation and poverty and blame it on external causes, rather than hiking taxes and cutting state spending.
Mar 05, 2016 18:53 PM GMT+0530 | 2 Comment(s)
ECONOMYNEXT - Sri Lanka hopes to stabilize the economy and trim the budget deficit to 5.4 percent of gross domestic product by hiking sales taxes and suspending for one year income tax cuts proposed in a budget for 2016.
In a budget for 2016, the deficit was planned at 740 billion rupees (5.9 percent of GDP) but there was doubts over the target, after a 499 billion deficit planned for 2015 deteriorated to 690 billion rupees in 11 months.
Prime Minister Ranil Wickremesinghe had presented proposals at a special session of the cabinet of ministers to raise new revenue and keep a check on spending, which could reduce the budget deficit to around 679 billion rupees next year, EconomyNext learns.
Sri Lanka wants to raise Value Added Tax to 15 percent, eliminate the current two-band structure and end exemptions including to telecoms, education and health services.
Nation Building Tax to be kept 2 percent, but to remove exemptions to areas like, power lubricants and telecoms.
There was also a proposal to charge capital gains tax on land and shares. However it is not clear whether all the proposals will be implemented, since some ministers were not happy with taxes on shares, sources said.
Corporate and individual income tax will be kept broadly at pre-budget level, but there was a proposal to tax all other companies at 17.5 percent, slightly higher from an earlier proposal to tax them at 15 percent.
However there is expected to be resistance from opposition ministers to reducing the threshold on personal income tax as they would then have to pay taxes, sources said.
All members opposed moves by Finance Minister Ravi Karunanayake to end tax free cars to them in November.
The cabinet paper has said that large liabilities in state enterprises and losses as well as tougher global economic conditions required higher tax revenues to keep the economy stable.
Analysts warned in early 2015, that a hike in state salaries and subsidies would de-stabilize the economy unless interest rates were raised more revenue generated.
The central bank however printed money to keep interest rates down and finance the deficit, making the rupee collapsed to 145 to the US dollar from 131.
The government has to either charge, taxes, borrow or print money to pay higher salaries and subsidies. Of all the options taxes are the least harmful.
Even a 10 percent hike in value added tax raises final prices by only 10 percent, but the rupee has already fallen from 131 to the US dollar to 145, destroying real salaries and past savings.
However due to hardcore Mercantilism which is taught as 'economics' from a young age analysts say it is possible in Sri Lanka to get away with printing money, generating inflation, currency depreciation and poverty and blame it on external causes, rather than hiking taxes and cutting state spending.
