Recent tax cuts support short term but greater fiscal clarity needed for medium term: CBSL

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Nov 29, 2019 (LBO) – Sri Lanka’s Central Bank observes that the recent tax revisions would support lower inflation and higher economic growth in the short term, but was of the view that greater clarity with regard to the medium-term fiscal path of the government is required to assess the impact on the economy over the medium term.

Announcing the monetary policy stance, the Monetary Board of the Central Bank also noted the fiscal slippages thus far during the year.

The newly formed government this week announced sweeping tax cuts with the aim of providing stimulus to all areas of the economy while widening the current tax base.

The Central Bank said the economic growth is predicted to be modest during the remainder of the year, with likely subpar growth in Industry and Services activities as implied by leading indicators.

“However, improved investor confidence, supported by political stability and fiscal stimulus driven boost to aggregate demand, is expected to drive short term growth,” the Central Bank said.

“The introduction of an appropriate policy mix, which utilises the available limited policy space prudently, would support the economy to reach as well as enhance its potential over the medium term.”

Related: Sri Lanka announces tax reliefs; cuts VAT to 8-pct, removes PAYE, WHT & Capital Gains Tax