First instalment of surcharge tax boosts April tax revenues; but gaping budget hole remains  

• Treasury receives first instalment of one-off surcharge tax of Rs.59.6bn in April
• Total tax revenue in first 4 months up 27.2% to Rs.543.6bn
• However, overall budget deficit expands to Rs.524.1bn from Rs.520.5bn

The first instalment of the one-off surcharge tax gave some boost to government revenues in the four months through April 2022, but the recurrent expenditure continued to exceed revenues reflecting one of the perennial macro-economic imbalances, which has contributed to the ongoing crisis.

According to the fiscal data for the first four months, the Treasury received the first instalment of the one-off surcharge tax of Rs.59.6 billion in April, bringing total tax revenues to Rs.543.6 billion in the first four months, up 27.2 percent from the corresponding period in 2021. 

The budget 2022, which has now been put on hold, proposed to tax 25 percent of taxable income of those who earned Rs.2.0 billion for the assessment years, commencing from April 1, 2020 with the aim of raking in Rs.100 billion. 

The tax was payable in two tranches, one in March and other in June. But, the tax came under heavier criticism for its retrospective nature and the extremely negative message it conveyed to investors. 

Although Sri Lanka restored its pre-2020 tax policies from June as a pre-emptive measure to fix the budget and also to meet a precondition by the International Monetary Fund (IMF) from which Sri Lanka is seeking a bail-out, it isn’t estimated to bring more than Rs.125 billion in incremental revenues in the remainder of the year as the economy has come to a virtual standstill due to the crippling dollar shortage. 

In the four months, the revenues from income taxes, taxes on goods and services, excise duties, Ports and Airports Development Levy (PAL) and Commodity Exports Subsidy Scheme (CESS) Levy showed some improvement against the same period in 2021. 

 The income tax revenue increased by 170 percent to Rs.149.2 billion, part of which came from the aforementioned one-off tax while the domestic consumption-oriented taxes increased by 23.9 percent to Rs.180.1 billion. The revenue from Value Added Tax (VAT) on domestic activities rose by 36.6 percent to Rs.85.3 billion while the revenues from excise duty on domestic activities rose by 14.6 percent to Rs.94.7 billion. 

The revenue generated from import-based taxes such as VAT on imports, CESS and PAL increased by 1.4 percent to Rs. 203.6 billion in the first four months of 2022 from Rs. 200.7 billion in the same period of 2021.

However, Finance Ministry said the revenue collection from Customs Import Duties (CID) and Special Commodity Levy (SCL) declined by 44.7 percent to Rs. 17.5 billion and 22.9 percent to Rs. 15.8 billion, respectively, due mainly to the import restrictions and downward revisions of SCL rates. 

The revenue from excise duty on petroleum products has noticeably declined by 20.4 percent to Rs. 16.4 billion during the first four months of 2022 due to the reduction in the imported quantity from 3.4 million metric tonnes to 2.9 million metric tonnes. 

In the first four months in 2022, non-tax revenues received some tailwind from the higher profit transfers from the Central Bank resulting in 60.2 percent increase to Rs.87.3 billion.  The total government expenditure rose by 15.2 percent in the four months to Rs.1,155.2 billion, of which recurrent expenditure amounted to Rs.1,016.8 billion, up 14.2 percent.  As a result, the overall budget deficit expanded to Rs.524.1 billion from Rs.520.5 billion.