Bankrupt Sri Lanka hikes taxes
Cash-strapped Sri Lanka on Tuesday announced steep, across-the-board tax hikes to shore up revenue as the country suffers its worst economic downturn and seeks an IMF bailout.
The value-added tax (VAT) applied on almost all goods and services was raised from 8.0 percent to 12 percent with immediate effect, while corporate taxes were also increased from 24 to 30 percent.
The personal income tax exemption threshold was lowered from 3.0 million rupees ($8,330) a year to 1.8 million rupees.
The increases were a rollback of the generous cuts ordered by President Gotabaya Rajapaksa soon after he won the November 2019 elections.
Prime Minister Ranil Wickremesinghe, who is also the finance minister, said Rajapaksa’s tax cuts cost the state some 800 billion rupees ($2.22 billion) annually and widened the budget deficit sharply.
International rating agencies, as well as independent economists, have pointed to Rajapaksa’s fiscal policy as having fuelled the current financial crisis.
Wickremesinghe, an opposition legislator, was made prime minister this month.
His predecessor and the president’s elder brother Mahinda stepped down after months of anti-government protests turned deadly.
The South Asian nation is in talks with the International Monetary Fund for a bailout after running out of dollars to pay even for the most essential imports such as oil, food and medicines.
Sri Lanka has also defaulted on its $51 billion foreign debt.
Wickremesinghe said he was also removing several tax breaks granted to companies in recent years.
The government did not say how much it will raise from the new tax measures.
However, the prime minister had said they had run out of rupees to pay the salaries of 1.5 million civil servants and would have to “print money”. That would in turn fuel inflation, which is already at a record 33.8 percent.
Personal tax threshold brought down to 1.8 Mln seems unfair in the context of price hikes of almost all necessities, food items, Vat increase would further affect the prices right round, fuel prices increase and inflation etc.
It is time to pay; income taxes, VAT, Business taxes, everything.
Subsidies on fuel, energy should be eliminated.
Token contributions towards education and health costs.
Slash pubic service salaries including MP’s and Ministers and eliminate all allowances.
Duty of luxury items including cars >1000 cc must be treble the value.