Confirms introduction of wealth tax

IMF yesterday confirmed that a wealth tax is part of the agreement entered with the Sri Lankan authorities. 
There was much speculation that the interim budget presented in Parliament this week by President Ranil Wickremesinghe would contain wealth tax as a revenue proposal. But it only contained a proposal to increase the VAT rate to 15 percent from 12 percent.  IMF mission chief for Sri Lanka Masahiro Nozaki pointed out that Sri Lanka’s tax collection is inadequate and the country has a very low tax to GDP ratio. He said there is a clear need to raise tax revenue to support the fiscal adjustments required and to reduce the fiscal deficit.  

“The tax reforms under the programme need to be progressing. It means that ensuring greater contribution from high income earners to minimise the impact of fiscal adjustment on the vulnerable and the poor.

In this context, one of the ways to ensure progressivity of tax measures is to use personal income tax, including higher tax rate for high income earners, and here the wealth tax is coming in as you mentioned,” Nozaki said.
“On the wealth tax, I would say it’s part of the discussion and part of the agreement in the staff level agreement with the authorities. The preparation of it will take time—how it will be designed, is going to be discussed with the authorities in an appropriate time frame,” he added.  With the assistance of the IMF, the government between 2015 and 2019 introduced a new tax law to Sri Lanka. But it was scrapped by the government that came into power in 2019 and introduced sweeping tax cuts.  Raising government revenue via tax reforms usually consists a major part of the policy framework recommended by the IMF towards fiscal consolidation. 

Under the latest programme with the IMF, Sri Lanka is expected to implement major tax reforms, “including making personal income tax more progressive and broadening the tax base for corporate income tax and VAT,” the statement issued by the IMF yesterday, stated. “The programme aims to reach a primary surplus of 2.3 percent of GDP by 2025,” it added.