Nov 30, 2016 (LBO) – Sri Lanka’s budget for 2017 is headed in the right direction, especially in terms of primary deficit reduction, Eteri Kvintradze, the resident representative of the IMF, said on Tuesday.
Kvintradze was speaking at Lanka Business Online’s LBR LBO Debrief: Economic & Business Climate Outlook 2017 which saw a full house of corporate leaders, researchers and academics.
“Revenue based fiscal consolidation is a central reform issue in Sri Lanka. Revenue has been one of the major structural deficiencies in this economy,” she said.
“I think this budget is going in the right direction, because it sets out the primary deficit target of 4.6 percent, and it’s going in the direction of 3.5 percent fiscal deficit by 2020.”
Kvintradze said Sri Lanka has a characteristic of being a low revenue country, and tax revenue is one of the lowest in the world. At the same time, “when you look at the tax system, you have complex and high number of taxes which are charged at high rates.”
According to Kvintradze, the dilemma of high tax rates that generate low revenue is due to the complex structure of tax incentives and holidays.
“I think the budget makes important moves in this direction.”
For the first time, a statement on tax expenditures is published in the annexure of the budget proposals, which explains the costs associated with tax incentives.
The new Inland Revenue Act has the potential to be the new landmark legislation in this regard because it will lay the foundation for indirect and direct taxation, she said.
The consultation process should begin early on, she added.
Another development is that the Ministry of Finance will submit quarterly reports to the Parliament on how implementation on budget commitments is progressing.
“I think it’s an extremely important feature, from a transparency point of view, and you are putting in place certain mechanisms where you are comparing promises with actual implementation.”