Sri Lanka faces Rs. 10 bn revenue shortfall due to recent populist tax cuts

Over one and quarter billion rupees is likely to be lost due to government’s recent Value Added Tax (VAT) exemptions on milk-powder and LP Gas. Over one and quarter billion rupees is likely to be lost due to government’s recent Value Added Tax (VAT) exemptions on milk-powder and LP Gas. A top Treasury source says the losses are in addition to a Rs. 7 billion shortfall expected in the second half due to (VAT) exemptions on diesel.

The source also said revenue is likely to be below the Rs. 387 billion budget target despite higher collections from imports, especially fuel, during the first half of the year.

Government announced a new set of indirect tax cuts, as election battle cries mounted and inflation also moved up upward.

The Treasury’s initial estimates show that Rs. 500 million in additional revenue will be lost this year for LP gas and Rs. 750 million will be lost during the rest of the year on milk powder.

These amounts however pale in the face of the Rs. 7 billion shortfalls in revenue that’s going to be caused by the VAT exemption on diesel.

The VAT cuts were pushed because raising inflation and the high prospect