Colombo: Sri Lanka Lost nearly 1 million taxpayers in the last two years after Gotabaya Rajapakse Governance announces comprehensive tax cuts in 2019 to spur growth, Finance Minister Ali Sabri has revealed, as the island nation faced an unprecedented economic crisis.
These tax cuts were introduced in November 2019 in keeping with President Rajapaksa’s election promises.
The cabinet had reduced the Value Added Tax (VAT) from 15 per cent to 8 per cent and also abolished seven other taxes.
These sweeping tax cuts led to a downgrade in the credit rating the following year, leaving Sri Lanka isolated in international financial markets.
Sabri told Parliament On Thursday, Sri Lanka lost nearly 500,000 taxpayers in 2020 and 2021 because of poorly timed tax cuts.
“From around 1,550,000 taxpayers in early 2020, this number has come down to 1,036,000 in 2020 and 412,000 in 2021. This is a big problem for us,” Sabri told parliament on Thursday.
According to official estimates, Sri Lanka’s foreign reserves rose from a healthy level of $8,864 million in June 2019 to $2,361 million in January 2022.
The COVID-19 pandemic in March 2020 only aggravated the situation, with tourist inflows and foreign remittances being affected in a big way.
The Daily Mirror newspaper quoted Sabri as saying that the prolonged and intermittent lockdown due to the pandemic prevented the economy from achieving what it had originally expected from the tax cuts.
“The tax cuts at the end of 2019 were brought in to stimulate economic activity for all tax paying citizens in the country and thus use that revitalization as a launchpad for the country’s development. As a result of the pandemic, it failed to deliver the desired results,” the minister explained.
In 2018, Sri Lanka’s tourism industry boomed and generated $4.4 million in revenue, and it fell to $200 million in 2021, mainly due to COVID-19, he said.
However, even before these tax cuts, Sri Lanka was the country with the lowest revenue-to-GDP ratio in the world, and the 2019 tax cuts brought Sri Lanka closer to the bottom of the list, the report said.
Subsequently, the government’s revenue-to-GDP was projected to decline from 9.1 per cent in 2020 to 8.7 per cent in 2021, while the tax revenue-to-GDP also declined to 7.7 per cent in 2021.
Sabri on Wednesday called the 2019 tax cuts a “historic mistake”. Going forward, the finance minister is expected to present a new budget for this year with a higher tax regime, reports the Daily Mirror.
“We have bitten off more than we could chew,” Sabri admitted before parliament on Wednesday.
After important talks with officials from Seabury, who recently returned from Washington, detailing the alarming state of the economy International Monetary FundSaid that Sri Lanka’s usable foreign reserves, which stood at around $7 billion in 2019, have now fallen to less than $50 million.
Sabri said that reducing taxes when taxes should have been increased was a mistake.
“I agree that this was a mistake. Instead of giving out fishing rods, we are now experiencing the end result of giving fish. The country currently does not even have $50 million liquid reserves.
Anti-government protesters are demanding the resignation of the Prime Minister Mahinda RajapakseHe is the head of a powerful family that has been in power for more than two decades, and his younger brother, President Rajapaksa.
So far, the Rajapaksa brothers have resisted calls to resign, although three of the five other Rajapaksa, who are MPs, stepped down from their cabinet positions in mid-April.
These tax cuts were introduced in November 2019 in keeping with President Rajapaksa’s election promises.
The cabinet had reduced the Value Added Tax (VAT) from 15 per cent to 8 per cent and also abolished seven other taxes.
These sweeping tax cuts led to a downgrade in the credit rating the following year, leaving Sri Lanka isolated in international financial markets.
Sabri told Parliament On Thursday, Sri Lanka lost nearly 500,000 taxpayers in 2020 and 2021 because of poorly timed tax cuts.
“From around 1,550,000 taxpayers in early 2020, this number has come down to 1,036,000 in 2020 and 412,000 in 2021. This is a big problem for us,” Sabri told parliament on Thursday.
According to official estimates, Sri Lanka’s foreign reserves rose from a healthy level of $8,864 million in June 2019 to $2,361 million in January 2022.
The COVID-19 pandemic in March 2020 only aggravated the situation, with tourist inflows and foreign remittances being affected in a big way.
The Daily Mirror newspaper quoted Sabri as saying that the prolonged and intermittent lockdown due to the pandemic prevented the economy from achieving what it had originally expected from the tax cuts.
“The tax cuts at the end of 2019 were brought in to stimulate economic activity for all tax paying citizens in the country and thus use that revitalization as a launchpad for the country’s development. As a result of the pandemic, it failed to deliver the desired results,” the minister explained.
In 2018, Sri Lanka’s tourism industry boomed and generated $4.4 million in revenue, and it fell to $200 million in 2021, mainly due to COVID-19, he said.
However, even before these tax cuts, Sri Lanka was the country with the lowest revenue-to-GDP ratio in the world, and the 2019 tax cuts brought Sri Lanka closer to the bottom of the list, the report said.
Subsequently, the government’s revenue-to-GDP was projected to decline from 9.1 per cent in 2020 to 8.7 per cent in 2021, while the tax revenue-to-GDP also declined to 7.7 per cent in 2021.
Sabri on Wednesday called the 2019 tax cuts a “historic mistake”. Going forward, the finance minister is expected to present a new budget for this year with a higher tax regime, reports the Daily Mirror.
“We have bitten off more than we could chew,” Sabri admitted before parliament on Wednesday.
After important talks with officials from Seabury, who recently returned from Washington, detailing the alarming state of the economy International Monetary FundSaid that Sri Lanka’s usable foreign reserves, which stood at around $7 billion in 2019, have now fallen to less than $50 million.
Sabri said that reducing taxes when taxes should have been increased was a mistake.
“I agree that this was a mistake. Instead of giving out fishing rods, we are now experiencing the end result of giving fish. The country currently does not even have $50 million liquid reserves.
Anti-government protesters are demanding the resignation of the Prime Minister Mahinda RajapakseHe is the head of a powerful family that has been in power for more than two decades, and his younger brother, President Rajapaksa.
So far, the Rajapaksa brothers have resisted calls to resign, although three of the five other Rajapaksa, who are MPs, stepped down from their cabinet positions in mid-April.