COLOMBO: Sri Lanka plans to make fundamental changes to tax policy and administration under an economic program supported by an International Monetary Fund loan.
The two sides have reached an agreement on a 36-month Extended Fund Facility (EFF) worth about USD1.5bn.
The economic program aims to reverse a two-decade decline in tax revenues and put public finances on a sustainable medium-term footing. Stronger revenue performance will enable smaller fiscal deficits and lower borrowing, reduce the overhang of public debt, and ease pressure on the balance of payments, the Fund said.
“The authorities’ program supported by the IMF focuses on a comprehensive set of reforms to Sri Lanka’s tax system – eliminating exemptions, holidays, and special rates to broaden the tax base and create a tax system that is simple, efficient, and more equitable,” Todd Schneider, IMF mission chief for Sri Lanka, said.
The government will seek to raise the tax-to-GDP ratio to near 15 percent by 2020 through the implementation of a new Inland Revenue Act and reform of the VAT and the customs code. These efforts will be complemented by capacity building and reform in revenue administration – making full use of automated systems and information technology to bolster tax collection while also clamping down on corruption and discretionary tax treatment,” he said.
Schneider said that the program aims to reduce the overall fiscal deficit to 3.5 percent of GDP by 2020.
