ECONOMYNEXT – Sri Lanka is making initial plans to revive a property tax, under an International Monetary Fund program, according to published program documents, a bullet that was dodged by the current administration.
The idea is to bring in the property tax by the first half of 2017. Property taxes, found in some Western nations, however require taxes to be paid without cash flows and may also hit an ageing population and their incomes.
“We plan to continue building the data infrastructure for a possible property tax,” the IMF economic policy pledges said.
“In the meantime, building adequate information on property valuation is key.
“The first step in the process requires a database on historical valuation records. To this end, we are working to digitize the valuation records held by the government valuation department, starting with municipal councils. We plan to complete this process by end-2025.
“Next, a database on market value estimates is required. We have thus put in place a provisional digital nationwide Sales Price and Rents Register (SPRR).
“We have resolved outstanding data sharing constraints and will establish the final SPRR by end-September 2025.”
IMF programs including Pakistan have peddled various kinds of property taxes.
Sri Lanka had severe housing shortages at one time, and property taxes and stamp duties were reduced or removed as part of rationalizing the tax system.
Sri Lanka President Anura Dissanayake pointed out recently that the country has had to compromise on sovereignty when economies collapse.
“A nation cannot maintain sovereignty when the economy has collapsed,” President Dissanayake said.
“When the economy has collapsed the state cannot be independent. Whether we like it or not, we lose our sovereignty and independence.”
Property taxes are not the same as capital gains taxes where there is cashflow to pay to the ruling class and house owning or building is not discouraged. In the US (where there is no VAT) property taxes have discouraged even maintenance.
After the end of a civil war there were expectations that nuisance taxes would be removed and taxes would be limited to value added tax and reasonable rates of income tax, like in East Asian nations with monetary stability and deflationary or neutral policy (no policy rate).
However instead of a peace dividend Sri Lanka got the most aggressive ‘monetary policy’ and overall macro-economic policy in its history, through mid-corridor targeting and potential output targeting, rejecting classical economics for statistics, critics have pointed out.
Serial currency crises, a frenzy of foreign borrowings, serial stabilization crises (the so-called Yahapalana regime was hit by two stabilization crises in a single term), trade controls, gold taxes, and tighter exchange controls and eventual default under extreme macro-economic policy was the outcome.
Sri Lanka’s data-driven monetary policy (flexible inflation targeting without a floating rate/Reer targeting (depreciating the currency after printing money to reach a high inflation target/potential output targeting printing money for growth triggering currency crise and default) is a rejection of classical economic principles in favour of statistics with inevitable consequences, analysts have said.
The rejection of economics is primarily the price-specie-flow-mechanism (David Hume), and also Ricardo and Adam Smith who went into anchor conflicts of banks of issue in greater detail (sterilizing interventions) and even some employees of the IMF who understood how note issue banks work, including Nobelist Robert Mundell. (Colombo/July04/2025)
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