Jan.-Nov. revenue shortfall hits Rs.492bn; but 4Q tax income exceeds 2019 levels

The government revenues in the 11 months to November 2020 recorded a sizeable deficit compared to the same period in 2019, as the pandemic took a massive toll on business and personal incomes but the final three months of the year showed such revenues surpassing the 2019 levels, in a sign of economic resilience amid the lingering effects of the health crisis. 

According to the latest data, the government collected Rs.1,262.1 billion in revenues from taxes, non-taxes and grants from January through November 2020, compared to Rs.1,753.9 billion in the same period in 2019, resulting in a Rs.491.8 billion shortfall.

Tax revenue—both direct and indirect— for the period was Rs.1,128.9 billion, compared to Rs.1,613.0 billion a year ago, as the pandemic buffeted the business and personal incomes.  
Meanwhile, in what could be termed as one of the biggest upsets to the critics of the tax stimulus unleashed at end-2019, Sri Lanka’s income tax collections for the October-December quarter surpassed the levels seen in the same period in 2019.  According to Finance Ministry Secretary S.R. Attygalle, the Treasury has collected Rs.65 billion in corporate and personal income taxes for the final quarter in 2020, compared to Rs.61 billion collected in 2020, for the final quarter of 2019.  This is also amid improved tax compliance under the lowest tax regime in the history of the country as the Inland Revenue Department had opened over 3,000 new tax files during this short span. This went on to show that the lower state taxes are capable of generating more incomes for a government as there is less tax evasion, and most crucially the tax payers—both businesses and individuals—are left with a higher disposable income for spending and investments, leading to many times higher economic multiplier effects. 

In any case, the government is never an efficient spender of money and thus makes a case for leaving more money with the private sector, which is efficient in their resource allocation decisions. 

Meanwhile, the data showed that the government had collected Rs.130.2 billion in non-tax incomes in the 11 months to November 2020, little down from Rs.136.7 billion in the same period in 2019.   

This is also an area where the government can be very efficient at, as higher fines and penalties on violations of laws in any form could achieve the dual objective of higher state revenues and tougher law enforcement, leading to a healthier and a livable society. 

Meanwhile, the government spent Rs.2,838.5 billion, both as recurrent expenditure and as well as capital expenditure and lending minus repayments during the 11 months to November 2020, compared to Rs.2,667.5 billion in the same period in 2019. 

The government spent Rs.2,373.5 billion as recurrent expenditure compared to Rs.2,114.0 billion amid forced spending on stimulus to battle the virus’ economic implications while they had to forgo on capital expenditure by a little under Rs.90 billion from Rs.553.5 billion of what they spent in 2019. 

As a result, the overall budget deficit increased to Rs.1,576.4 billion during the 11 months ending November 2020, from Rs.913.7 billion recorded in the corresponding period of the previous year.