Govt. weighs hike in tobacco tax to help boost revenues

Reuters: Sri Lanka plans to hike a tax on tobacco as it seeks alternative sources of income after two Supreme Court rulings delayed a plan for tax hikes to raise Rs. 100 billion ($ 686.81 million) in revenue this year, the cabinet spokesman said on Wednesday.

The hikes were among the main requests of the IMF, which approved a $ 1.5-billion, three-year loan for the island nation in May, and a failure to raise revenue could jeopardise the government’s ambitious fiscal consolidation plan.

Sri Lanka’s parliament on Tuesday said the Supreme Court had ordered it to stop consideration of a bill to raise value-added tax (VAT) because due process had not been followed in drafting the measure, a month after lawmakers suspended the tax hikes.

“We are now considering alternative revenue proposals,” the spokesman, Rajitha Senaratne, told reporters in the capital, Colombo. “We are planning to increase tax on tobacco to raise 18 billion rupees.”

Senaratne, who is also health minister, said the government would adopt the tax hike “very soon” after getting parliament’s approval.

Sri Lanka had planned to cut its budget deficit to 5.4% of gross domestic product (GDP) this year from last year’s figure of 7.4%, and has estimated it will achieve revenue of 2.032 trillion rupees ($ 233.5 billion) in 2016, a jump of 38% from last year.

“So far there is no revision in the fiscal targets,” Eran Wickramaratne, the deputy minister for state enterprises, told Reuters. “We still hope we can achieve them with alternative revenues.” Sri Lanka’s state finances are in a shaky situation, partly due to heavy borrowing by the previous Government during its nine-year tenure that ended in January 2015.