Fin. Min. on ‘out-of-the-box’ Budget:

Direct tax net to widen

by Lalin Fernandopulle

More Sri Lankans will feel the pinch of direct taxes in the long term as the government shifts tax policy, Finance Minister Ravi Karunanayake says.

Discussing the 2016 government Budget due in Parliament this week, the Finance Minister told Sunday Observer Business that, revenue policy in the long term, will shift the ratio between indirect and direct taxes from the current 80:20 ratio to 60-40 by 2020.

The 2016 Budget will be an ‘out of the box’ and a revolutionary Budget unlike previous Budgets to take the country forward, he said in an exclusive interview on Friday.

He said the country would know what he meant by a revolutionary Budget when he presents it on Friday, November 20.

With regard to bridging the Budget deficit, the Minister said the government inherited immense problems from the former government. However, we need to forge ahead with our plans to expedite development.

The government will tap domestic and foreign funding sources by way of taxes and foreign borrowing to finance development projects.

The Minister also said that the Budget will aim at raising taxes in areas which have not been looked at before without placing a big burden on the public.

“Unknown and neglected areas are being looked at for revenue generation.

It will create revenue, which will be greater than the recurrent expenditure of the year 2016. But the revenue plan won’t have a cost impact on the people,” Minister Karunanayake said.

Elaborating on the prospects of the economic policy statement made by Prime Minister Ranil Wickremesinghe in Parliament recently, the Minister said that the government is looking for a policy shift to change the ratio between indirect and direct taxes from the current 80-20 percent to 60–40 percent by the year 2020.

The government aims to reduce the budget deficit to 5.5 percent of gross national production between 2016 to 2018. When asked about the IMF denying claims of the fund giving unconditional support for Sri Lanka’s development initiatives, Karunanayake said discussions were held in Peru and added that no foreign dictatorship will be allowed to run the Budget.

The International Monetary Fund (IMF) refuted claims by Minister of Finance Ravi Karunanayake about the Fund offering ‘unconditional support for Sri Lanka’s development initiatives.’

The Fund in a release stated: “If a formal request is received, the IMF would send a mission to assess macroeconomic vulnerabilities, the nature and size of balance of payments needs, and government’s policies to address these vulnerabilities.

The Minister recently said that the IMF was “ready to extend financial assistance to revive the economy,” and that “Sri Lanka was not subject to any conditions imposed by the IMF, but would support Sri Lanka on its conditions.” The IMF spokesperson refuted the claims saying the “IMF has not entered into negotiations on a program nor do we have any new missions to Colombo scheduled outside of technical assistance.” He said the Super Gains tax was a one-off tax and what was paid were instalments for last year. People could speculate and make accusations. Those who make such accusations are those who spent lavishly during the former government on foreign trips using the taxpayers money. Prime Minister Ranil Wickremesinghe told Parliament last week that the super gains tax imposed by the new administration in its interim Budget 2015 need not be maintained.

“With the intermediate Budget guidelines, we imposed a super gains tax. This was based on the fact that the demand for goods and services was down,” the Premier said.

However, Karunanayake said the tax policy of the government will continue. We will strike a balance with the demand for vehicles and the need to limit imports. The loan to value ration of 90 percent for purchase of vehicles is good,” Karunanayake said.

The loan to value ration for vehicles which was slashed to 70 percent recently was reverted to 90 percent recently.He also said the Budget will be a capital oriented while aiming at higher revenue than recurrent expenditure.More than the previous allocation the capital expenditure will be significantly increased, the Minister said.

The budget will also encourage to make private sector investment between 22 – 24 percent of the GDP to maintain the total investment level of the economy at 30 percent of the GDP, Senaratne said. The government plans to achieve an economic growth beyond 8 percent in the medium term framework of the budget 2016. When asked whether about relief measures for the masses Karunanayake said the next Budget will relieve the burden of the people as it would be a people and development friendly budget.