Govt. denies any moves to increase income taxes amid growing speculations

• Minister Alahapperuma says tax increases “not discussed” in the Cabinet 
• Says Trade Minister’s proposal to tax those earning more than 100, 000 is his personal view

Amid strong speculations of a possible income tax hike as State coffers have run dry, the government yesterday denied moves to increase income taxes including a five percent tax on anyone receiving a monthly allowance above Rs.100,000 proposed by Trade Minister Bandula Gunawardana.

Gunawardana last week told local media that a five percent tax should be imposed on anyone receiving over Rs.100, 000 as a monthly allowance to set up new a fund named ‘Community Preservation and Contribution Fund’ in order to maintain key public services, while tackling the COVID-19 pandemic. 

According to Finance Minister Basil Rajapaksa, the loss of State revenue so far during the year is estimated at Rs.1.5-1.6 trillion, higher than the initial estimates. In particular, he noted that the 75-80 percent VAT revenue is being lost on a daily basis due to the on-going lockdown.

However, the Cabinet Co-Spokesperson and Minister of Mass Media, Dullas Alahapperuma yesterday denied any moves to increase income taxes or to broaden the tax threshold.

“Its not even discussed in the Cabinet,” he stressed.

He noted that Gunawardana’s proposal was merely his personal view.

However, First Capital Research (FCR) in its mid year report highlighted that there’s ‘reasonable chance for income tax to be increased with or without an International Monetary Fund (IMF) programme.

“Considering the dire need for tax revenue there seems be a reasonable chance that tax rates raised either at the consumer level or corporate or both. Whether Sri Lanka goes through an IMF programe or not, the government may have to revise its tax rates in order to improve its coffers,” the report noted.

 According to 2022 budget preparation instructions issued so far the government seemed to be focused on austerity measures,  cutting expenditure via freezing new recruitments and restructuring social welfare programmes, instead of revenue-based fiscal consolidation measures backed by the IMF. In the first half of the year, the overall budget deficit was expanded by 6 percent to Rs.780.2 billion compared to Rs.735.7 billion in the same period last year. As the current State revenue accounts for less than half its expenditure, First Capital forecasts the budget deficit to shoot above the 10 percent mark for the second consecutive year. (NF)