• Govt. expects to raise Rs.3,820Bn from taxes
• VAT increased by 3%
• Rs.450Bn allocated for bank recapitalization*CoL of public sector increased by Rs.10,000 and pensioners by Rs.2,500

By Indika Sakalasooriya  

President Ranil Wickremesinghe yesterday unveiled a budget  that could be deemed pragmatic, acknowledging the limited fiscal and  political room for additional taxes, while simultaneously showcasing  ambition through its revenue proposals and deficit targets to satisfy  the International Monetary Fund (IMF).  

Contrary to expectations, the 2024 budget did not introduce  new taxes or increase existing tax rates. Instead, the primary revenue  proposal appears to have centred around a 3 per cent increase in the  Value-Added Tax (VAT), sanctioned by the Cabinet of Ministers prior to  the budget announcement.  

It’s evident that President Wickremesinghe’s administration  lacks the political leeway to impose additional taxes on a population  already burdened by high taxation, especially in the context of the  upcoming Presidential and General Elections, next year.  

Besides, further taxation wouldn’t help a growth-hungry  economy, as higher taxes could further weaken consumption. Sri Lanka’s  economy contracted 7.8 per cent in 2022 and recorded contraction of 3.1 per cent in the second quarter of this year.  

 The move to increase the cost-of-living allowance (CoL) of  the public sector by Rs.10,000 and the CoL of pensioners by Rs.2,500  will not only augur well politically for Wickremesinghe but also will  give some impetus to consumption, thereby fostering economic growth. For  this, 2024 budget has set aside Rs.133 billion.  

“Some people denote this budget as an election budget. The  reason is the Presidential Election and the General Election is  scheduled in the next year. Such a budget is designed to provide various  concessions and salary increments, aiming at an election victory. This  is what happened during the past 75 years since the independence,”  President Wickremesinghe said.  

“However, this election budget is different. This is a budget that constructs the  future of the country. This is a budget that was prepared for the victory of the  county,” he stressed.  
Despite the seeming lack of revenue proposals, the 2024 budget has some ambitious government revenue and deficit projections.  

The government expects to raise Rs.4,127 billion as  revenue in 2024, which is a sharp increase from the revised Rs.2,851  billion revenue target in 2023. The estimated budget deficit for the  year is 9.1 per cent of the GDP (including the bank recapitalization), a little higher than the estimated 8.5 per cent deficit for 2023.  
From taxes, the government expects to raise Rs.3,820 billion, compared to Rs.2, 596 billion in 2023.  

In the 2024 budget, the government has indicated its clear  intentions to tighten the country’s tax net and to improve the tax base.  

While introducing penal provisions to prosecute people who  have not submitted tax returns and information required by the tax  officials, the 2024 budget proposes the submission of a Tax  Identification Number (TIN) mandatory for basic activities like opening a  bank account, registering or licensing a vehicle, obtaining approval  for a building plan and registering a land or title to a land.   

In the meantime, projected expenditure for 2024 is at  Rs.6.98 billion, marking a surge of 33 per cent from the previous  year. This includes a more than twofold increase in capital expenditure,  and an allocation of Rs.450 billion specifically earmarked for bank  recapitalization.  

The IMF, which is yet to approve the second tranche of the  US $ 3 billion loan facility for Sri Lanka, had called for a “strong  budget.” The extent to which the 2024 budget meets this criterion is a  matter of debate.  

But the public and the country’s businesses can  tentatively breathe a sigh of relief, as no additional taxes have been  imposed on them, thereby avoiding further hardships on their  livelihoods.