IMF feels SL’s pain but insists tax hikes are critical

 IMF Senior Mission Chief for Sri Lanka Peter Breuer (right) and IMF Mission Chief for Sri Lanka Masahiro Nozaki

• Admits it understands hardship faced by people of Sri Lanka and the poor and vulnerable who have no buffers to withstand
• Says current economic crisis is also due to Govt.’s inability to meet spending needs through revenue collections
• Points to external creditors unwillingness to provide financing to fill this gap
• Says tax reforms and hikes are needed to correct this imbalance; regain confidence of creditors
• Backs current tax package as being in line with international comparison

The International Monetary Fund (IMF) yesterday declared that it recognises the hardship of people but insisted tax hikes are critical for Sri Lanka.

“We understand the hardship people of Sri Lanka are experiencing at this time. Increases in the cost of living, loss of employment and livelihood, and falling real incomes have hit large parts of the population, and particularly the poor and vulnerable who have no buffers to withstand these hardships,” said IMF’s Senior Mission Chief for Sri Lanka Peter Breuer and Sri Lanka Mission Chief Masahiro Nozaki.

Responding to recent media questions around income tax hikes, the IMF officials pointed out that the current economic crisis has a number of origins, including the Government’s inability to meet Government spending needs through its revenue collections.

“Sri Lanka is among the countries to collect the least amount of fiscal revenue in the world, with tax revenue to GDP ratio at only 7.3% in 2021. External creditors are not willing to provide financing to fill this gap,” IMF officials added.

In that context they emphasised that: “Tax reforms are needed to correct this imbalance and only with appropriate tax receipts will the Government be able to fund essential expenditures, and avoid further slashing of critically important outlays. These reforms will also help regain the confidence of creditors.” 

IMF officials said efforts to increase tax revenues should be pursued in a growth friendly manner while protecting the poor and most vulnerable.

“It is however also important that those who can most afford it, make commensurate contributions to the financing of the necessary Government expenditures,” they added.

The tax package the authorities have introduced, including the new tax rate schedule for the personal income tax, IMF officials said “helps to meet these objectives. The tax rates proposed under the authorities’ program are also in line with international comparison.”