IMF to discuss additional revenue mobilisation with Sri Lanka during first review in September

The International Monetary Fund (IMF) yesterday said it expects to discuss with Sri Lankan authorities how best to mobilise additional revenues for the country at the upcoming first review of the Extended Fund Facility Programme (EFF) scheduled for September.

An IMF spokesperson said the talks could include the benefits and challenges of introducing a digital service tax.

However, IMF said up to now it has not discussed any plans for a digital services tax with the Sri Lankan authorities under the current programme, nor has it provided any recommendation on whether or not Sri Lanka should sign on to the OECD/G20 inclusive framework agreement for international corporate taxation.

Despite implementing significant changes in economic management approximately a year ago under the US$ 3 billion IMF programme, Sri Lanka continues to face challenges in reducing its budget deficit. 

Sri Lanka raised taxes across the board, ended exemptions and introduced new taxes such as Social Security Contribution Levy while suspending big time spending to plug the fiscal hole.

However, according to the most recent data available up until March 2023, the budget deficit for the first three months amounted to Rs.624.8 billion, up from Rs.484.3 billion during the same period last year.

As expected, the country witnessed growth in revenue from Rs.446.9 billion to Rs.635.3 billion, primarily driven by increased tax income. 

Sri Lanka’s economy in the first quarter of 2023 contracted by 11.5 percent after shrinking a record 7.8 percent in 2022.