31 August 2022 12:49 am Views - 190
President Ranil Wickremesinghe in his capacity as Finance Minister delivering the interim budget -2022 speech in Parliament yesterday. Prime Minister Dinesh Gunawardena looks on
President Ranil Wickremesinghe in his capacity as country’s Finance Minister yesterday presented an interim budget for the remainder of the year, where a sneak-peak was given to the reform-heavy path Sri Lanka would be compelled to take in the coming years to emerge from the worst economic crisis since its independence.
While expressing his regret about the change of direction in the country’s fiscal path effected by his predecessor Gotabaya Rajapaksa by introducing sweeping tax cuts in the latter part of 2019, President Wickremesinghe indicated his intention to bolster the government’s tax revenue and strengthen the tax administration.
Much emphasis had been given in the interim budget towards quick restructuring of loss-making state-owned enterprises, reducing number of government employees, re-activating the Statement of Corporate Intent for SOEs and introducing stronger fiscal rules under Public Finance Management Act.
Wickremesinghe also said the new Central Bank Act, which couldn’t be enacted due to change of government in 2019, will be implemented as a key legislation to strengthen the monetary sector of the country. “This legislation would provide the framework for effective implementation of inflation targeting and prevent monetary financing of the budget deficit - what is commonly known as money printing,” he said. Meanwhile, to the surprise of many, the only revenue proposal contained in the interim budget was the increase of Value-Added Tax (VAT) to 15 percent form 12 percent with effect from September 1. The VAT rate was initially reduced to 8 percent by the Gotabaya Rajapaksa administration in 2019 end.
However, a number of tax reforms pertaining to income tax, VAT, Telecommunication Levy and Betting and Gaming Levy had already been approved and implemented from end May.
The government is expected to present a full budget for the year 2023 in November.
“This is basis to the formulation of a national economic policy in accordance with the new world order. Based on this foundation, the Budget for the year 2023, will initiate the process of creating a new economy. For the process of creating a new economy, I plan to present a comprehensive set of proposals in the Budget 2023,” President Wickremesinghe told Parliament presenting the interim budget. Meanwhile, the budget deficit for the year 2022 is expected to expand to 9.8 percent of GDP to Rs.2, 333 billion from the original estimate of 8.8 percent as per the interim budget estimates. The government expects to finance the budget deficit with foreign financing amounting to Rs.342 billion and domestic financing of Rs.1, 991 billion. The total revenue of the government in 2022 including grants is estimated at Rs.2, 094 billion, down from the original estimate of Rs.2, 223 billion, whereas total expenditure is estimated at Rs.4, 427 billion, significantly up from Rs.3. 851 billion originally estimated for 2022.
This is the first time where Sri Lanka’s government expenditure topped the Rs.4 trillion mark. Despite the tax increases, the tax revenue for 2022 is estimated at Rs.1, 852 billion, down from Rs.1, 987 billion originally estimated for the year. Meanwhile, out of the over Rs.4.4 trillion expenditure, Rs.3, 620 billion is estimated as recurrent expenditure, up from Rs.2, 935 billion originally estimated. Meanwhile, during his budget speech, Wickremesinghe reiterated his plan to create a surplus in the primary budget by the year 2025. “Our effort is to stabilise the economic growth rate. Our aspiration is to establish a solid economic foundation by the year 2026.
As at end 2021, public debt was about 110 percent of the Gross Domestic Product (GDP). Our target is to bring this down to less than 100 percent in the medium term,” he stressed. The interim budget proposed to almost double the tax-to-GDP ratio to 15 percent by 2025 from 8.2 percent at the end of 2021. Wickremesinghe also proposed to introduce compulsory tax registration for all residents who are above 18 years of age without considering their annual income and tax-free thresholds. The interim budget expects inflation, which was flirting with 70 percent last month, to be brought back under control to a mid-single digit level in the medium term. Wickremesinghe expressed confidence in interest rates reaching a moderate level gradually in tandem with the decline in inflation. “With the implementation of a series of growth enhancing structural reforms, the medium-term economic growth is expected to return towards 5 percent,” he said.