ECONOMYNEXT – A controversial imputed tax on housing promoted by the International Monetary Fund, with rents on second houses already taxed will be deferred, a senior advisor to Sri Lanka President Anura Kumara Dissanayake has said.
The government was also working on a policy of targeted subsidies rather than indiscriminate tax reduction, he said.
The imputed rental tax, which was to have been paid on owner-occupied houses and later adjusted to a second house, has been controversial.
There have been warnings that such a tax may discourage the expansion of housing stock where high taxes are already paid on building materials.
“That will be deferred,” Duminda Hulangamuwa, advisor to the President told a talk show Sri Lanka’s Derana Television.
The tax was expected to bring around 0.2 percent of revenue.
The Head of the Economic Council of the NPP, Anil Jayantha pointed out before the elections that imputed income was not real income.
The NPP had also wanted some value added taxes to be brought down.
Under the IMF program has revenue targets have to be met.
“So, they have given overall target for us to meet, and within that target, if you shift one revenue item and we have reduction in one, we need to compensate from the revenue,” he said.
“So, but that has to be done, we have to be responsible. For example, we can’t reduce VAT from 18 to 12 percent and increase income tax from 30 to 60 percent, you can’t do those things.”
Taxes should not discourage investment, he said.
“What the IMF is saying is that don’t use taxation as a means or a measure to give concessions,” Hulangamula explained.
So, what they’re saying is have taxation as is for everyone, but they acknowledge there is a vulnerable sector … And those vulnerable people must be given a cash grant. (11:49) So, have a subsidy scheme working for the target community.
“Otherwise, for instance, for example, if you do a reduction in diesel or petrol of 50 or 75 rupees or 100 rupees, or you do a reduction in electricity across the board to everyone, the person who drives a Mercedes as well as the person who drives a three-wheeler pays the same petrol, so all of us benefit from that subsidy.”
“It should not be that. It should be a targeted subsidy so that you give only to people who can’t afford to pay.”
“So, for example, if you want to give a subsidy to fishermen for their fishing trawlers for their fuel, if you want to give a subsidy to schoolchildren, you target them.
“I think the President has announced for schoolchildren to be given free books, target the schools, the children, the deserving children from those schools, and to be given free books. He has made an allocation for that already from the budget this year.”
Broadly a move towards revenues of 15 percent of gross domestic product.
There have been concerns raised about the IMF’s so-called ‘revenue based fiscal consolidation’ an unusual – some say naïve – strategy that does not involves spending based consolidation, as spending will catch up with revenue.
Sri Lanka has a bloated public sector, with the system being stuffed with unemployed graduates and other supporters of various politicians as well as an oversized military due to a 30-year war and most of the taxes collected from the people go as salaries to state workers.
Sri Lanka has had fiscal problems even when revenues were 23 percent of GDP, especially when there was monetary instability, analysts say.
Sri Lanka has one of the largest public sectors in the region, according to the portal PublicFinance.lk.
State employment was 15 percent of the workforce in Sri Lanka, compared to 10 percent in Singapore, 9 percent in Thailand, 9 percent in Indonesia 8 percent in Vietnam, 5 percent in Cambodia and 14 percent in Malaysia. (Colombo/Dec01/2024)
