Govt. revenue up during first four months on spurt in economic activity

• Revenue rose 0.8% to Rs.482.2bn from the same period in 2020
• Tax revenue rose 4.6% or nearly Rs.19bn to Rs.427.3bn
• However, fiscal deficit widened 15% to Rs.520.5bn on higher expenditure

Largely debunking the claims that 2019 tax cuts deprived massive revenues to the State coffers, Sri Lanka reported higher tax revenues during the first four months of 2021, as the country was off to a burst in economic activity before the virus controlling task force threw a wrench in mid-April pushing the economy off course and into the current abyss.  

However, the fiscal deficit broadened on higher expenditure incurred during the same period. 

According to Finance Ministry data, Sri Lanka’s total State revenues and grants rose marginally or 0.8 percent to Rs.482.2 billion from the same period in 2020, which could have been even higher if not for the business and job killing restrictions re-imposed from mid-April, as consumers cut back significantly on their activities triggering a cascading effect on the rest of the economy.  

And, this was also amid certain sizeable sections of the economy such as leisure, entertainment and education still operating at suboptimal level.  

Tax revenues in particular rose by 4.6 percent or nearly Rs.19.0 billion to Rs.427.3 billion during January through April from the same period in 2020. 

The low base effect may have also played a part but the incumbent performance period demonstrates what low taxes could do to support the economy.

This was also seen from the record high listed entity corporate earnings for the March quarter, which eclipsed to Rs.100 billion for the first time in history. 

While the government achieved a quarter of its annual revenue target during the four months, the virus-related restrictions in the second quarter led to the government to scamper for revenue. 

However, the lower taxes matter only very little unless authorities manage to tame the prices down as inflation acts as an indirect tax on people’s incomes.

In June, people spent over 11 percent on their food from a year ago while they spent 5.2 percent higher overall as Colombo prices jumped after the lockdowns created supply chain bottlenecks while the weaker rupee sent import prices up. 

Meanwhile, State expenditure rose by 7.7 percent to a trillion rupees from a year ago as recurrent expenditure, led by interest payments rose fast. 

As a result, the overall budget deficit was pushed up by 15.1 percent to Rs.520.5 billion from the same period last year, forcing the government to finance the budget mostly through domestic financing, amid its plans to cut down foreign financing.