SL will fall into bottomless economic abyss if not for tax hikes: Cabinet spokesman

By Sandun A. Jayasekera   

Unless the government increases state revenue through tax hikes,  imports control and expenditure cuts, Sri Lanka would fall into a  bottomless economic, social and political abyss and the global community  and financial agencies like the IMF, the World Bank and the ADB  will distance us like a pest, Minister Bandula Gunawardana said  yesterday.

In that case, the government is not in a position to give  any relief to public servants who have staged protests against the  proposed tax increase, he added.   

As the things stand right now, odds are against Sri Lanka  and as such there was no any other option than agreeing to the  conditions laid down by the IMF at the staff level discussions to obtain  the extended fund facility of US$ 6.9 billion, he added.   

The government would bring down the tax ratio to a  satisfactory level soon after the economic recovery aided by the credit  restructuring and financial assistance programme are in place from the  IMF, the World Bank, ADB and donor countries, he added.   

“The government side had to go for hard negotiations to get  the consent of the IMF to bring down the income tax threshold to Rs.  100,000 from Rs. 45,000 a month as the IMF officials were adamant that  all Sri Lankans earning an income of Rs 45,000 or more must be taxed,”  Minister Gunawardana said.   

The debt trap is our own creation over the years by  successive governments. We spend much more than our income. For example,  in January 2023, the total government revenue was Rs. 158.7 billion  collected through the Inland Revenue Department, Excise Department, Sri  Lanka Customs and non-tax revenue. But the expenditure in January 2023  stood at Rs. 367.8 billion, more than double the income. The main  recurrent expenditure was salaries to public officers at Rs. 87.8  billion, for pensions – Rs. 29.5 billion, capital expenditure – Rs. 21  billion and other expenses – Rs. 10.8 billion, he noted.   

“The government bridged the gap and footed the bill by way  of loans, Treasury Bills, Bonds and Bank Drafts. But we can’t go like this  forever. 

That is why the government cannot give any relief right now.  Besides, the IMF has told the government not to print money,” Minister  Gunawardana stressed.   
He said the government has decided however to waive the  Social Security Levy of 2.5% that had been imposed on small and medium-scale enterprises and certain individuals as they cannot afford it, he  noted.