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Monday, 31 March 2014 00:00 - - {{hitsCtrl.values.hits}}
“We are working on a 5% deficit,” Dr. P.B. Jayasundera, the Treasury Secretary and the main technocrat in President Mahinda Rajapaksa’s Government, told Reuters in an interview. “We haven’t revised the 5.2% target. But we feel comfortable.”
A 5% deficit would be the lowest since 1977. Sri Lanka hit its deficit target of 5.8% last year by cutting capital spending to 5.8% of GDP from an expected 6.1%.
Revenue for last year was estimated at 13.6% of GDP, less than an originally expected 14.5%. In its 2014 budget, the government introduced new taxes on banks and retail goods. It now expects revenue of 14.5% of GDP this year.
The International Monetary Fund has repeatedly expressed concern over Sri Lanka’s low tax revenues. It asked Sri Lankan authorities to increase revenue instead of cutting capital expenditure or public investment, including spending on health and education, to achieve reach deficit target.
“Public investment will not be a victim,” Jayasundera said. “Incrementally, the public investments should go up.”
The Treasury Secretary said the shortfalls that have depleted tax revenues have been now addressed and tax administration has also been improved. Under-invoicing in motor vehicle imports, cement, steel and palm oil resulted in lost revenue in the past, he said.
“This is huge leakage in the Government revenue. We have arrested this,” the Treasury Secretary said.
The Government will now tax imported vehicles based on the manufacturer’s value instead of the value quoted by the seller. It has also imposed an additional 10% tax on vehicle registrations for vehicles imported under special permits for State workers.
Sri Lanka expects its $67 billion economy to grow 7.8% this year from 7.3% last year. The Government has already reduced key interest rates to multi-year lows to boost expansion. But private-sector credit growth has still been sluggish, despite the lower interest rates.
Jayasundera expects the lower rates to improve private-sector credit growth after May, and increasing private-sector activity to help boost revenue in the second half.
