• 2022 revenue projected at Rs.2,284bn; expenditure at Rs.3,912bn
• Tax revenue expected at Rs.2,274bn; a couple of new taxes introduced on large companies 
• Some innovative proposals to prop up non-tax revenues
• To heavily rely on domestic sources to finance budget deficit similar to in 2021
• Analyst says consistency can be seen between govt.’s current policies and 2022 budget 

Sri Lanka expects to reduce its fiscal deficit to 8.8 percent of the gross domestic product (GDP) in 2022, down from the estimated 11.1 percent deficit in 2021, as the maiden budget of Finance Minister Basil Rajapaksa looked to cut expenses and introduce measures to increase tax and other revenues.

The government expects its revenue to go up to an ambitious Rs.2,284 billion in 2022, from estimated Rs.1,561 billion in 2021, although the 2021 revenue estimation is down from the Rs.2,029 billion target announced for that year. The revenue to GDP is expected to increase to 10.7 percent, from 8 percent in 2021.

With some new tax proposals such as a 25 percent one-time surcharge tax on about 62 companies with taxable income over Rs.2 billion for the year 2020/21 and 2.5 percent ‘Social Security Contribution’ on companies with annual threshold turnover exceeding Rs.120 million, while hiking taxes on cigarettes and liquor, the government expects to generate a tax revenue of Rs.2,274 billion for 2022, up from Rs.1,556 billion in 2021.

To prop up the non-tax revenue, the government expects to auction broadcasting frequencies for radio and TV and 5G frequencies while issuing licences for leisure-related activities in special zones slated to be developed.   

Also, the government expects to generate Rs.4 billion non-tax revenue via some new proposals on motor vehicles, which include levying a fee on vehicles that undergo accidents, modification and legalising all unauthorised roadworthy motor vehicles by paying a penalty during the period of amnesty. 

In doing so, the government expects to increase non-tax revenue to GDP to 1.2 percent, from one percent in 2021 and tax revenue to 10.7 percent, from 8 percent in 2021.

Meanwhile, the total expenditure for 2022 is estimated at Rs.3,912 billion, up from Rs.3,387 billion in 2021, out of which Rs.2,996 billion will be on recurrent expenditure such as salaries and wages of the public sector. 

Meanwhile, to finance the budget deficit, the 2022 budget looked to heavily rely on domestic financing, similar to in 2021, with Rs.1,807 billion, compared to Rs.1,874 billion in 2021. 

On the expenditure side, Rajapaksa proposed to introduce some austerity measures on MPs and public servants by reducing their fuel allowances, telephone and electricity expenses and extending the pensionable service period of an MP to 10 years, from the current five years, which could be largely to pacify the public opposition growing towards the country’s ruling class.  

On a much more progressive note, Rajapaksa proposed to introduce key performance indicator (KPIs) to public corporations and institutions and to issue quarterly warrants, instead of annual warrants by the Finance Ministry, authorising the expenditure of government institutions. However, on the same breath, Rajapaksa made a proposal to take over 50,000 graduates on to the permanent cadre to an already bloated public sector.    

Also, the 2022 budget contained proposals to modernise subsidy programmes such as ‘Samurdhi’ to be more targeted to serve their purpose. Further, the proposal to allocate Rs.2,000 billion to strengthen vocational training could help with the huge demand for skilled labour in the country. 

Meanwhile, the 2022 budget was in line with the government’s import substitution policies, though they have proven to be a failure with shortages and spiking of prices with some commodities in the domestic market. 
“This budget is good in terms of the policy consistency of the government as it did not contain any surprises,” an economic analyst said.