FinMin says will reduce VAT by 2.5% in 2020 to ease tax burden on poor

Finance and Mass Media Minister Mangala Samaraweera has pledged to reduce the Value Added Tax (VAT) by 2.5 percent in 2020 to relieve the country’s poor people from the tax burden.

The Sirisena-Wickremesinghe government jacked up the VAT rate by 4 percent to 15 percent, in a bid to boost government revenue and to ensure fiscal consolidation.

“It is the poor people who mostly pay taxes to the government by way of indirect taxes. We should relieve them of this burden. Therefore, I expect to reduce the VAT by 2.5 percent in the year 2020,” Samaraweera said.

Sri Lanka’s indirect to direct tax ratio currently stands at 82:18 and the government has vowed to bring the ratio down to 60:40.

With the new Inland Revenue Bill coming into effect from April 1, the Inland Revenue Department said they opened up 49, 000 new income tax files in April and said they hope to increase the number to 250, 000 by the end of the year.

Meanwhile, Samaraweera said since Independence, the highest amount of debt servicing has to be paid in 2018 due to the economic mismanagement of the previous Rajapaksa administration.

The total foreign debt to be paid this year is US$ 2,845 million and of which US$ 1,789 million has to be paid for government borrowings done before the year 2015. Only US$ 1,056 million is to be paid for foreign loans borrowed after 2015.    

Accordingly, 63 percent debt installments to be paid this year are repayments of debts that had been borrowed during the previous Rajapaksa regime. 

It was at the level of 75 percent in 2017, Samaraweera pointed out.

The situation would further worsen next year as US$ 4,285 million have to be paid in 2019 and of which US $3,315 or 77 percent of the repayment are for the debt obtained during the tenure of President Mahinda Rajapaksa, who also functioned as the country’s finance minister. 

Another US$3,768 million will have to be paid as loan installments and interest in 2020 and of which 77 percent or US$2,905 million is the debts that were borrowed before 2015. Only US$ 863 million have to be paid for the debt that was borrowed after 2015. 

In 2021, 83 percent of the foreign debt installments will have to be paid to repay the debt taken before 2015.

“In addition, even in 2030, 73 percent of the repayments will go to pay the debts that were obtained during Rajapaksa regime for the waste, fraud and corruption committed by the oligarchies of the Rajapaksas,” Samaraweera stressed.