The key focus in Sri Lanka’s economy in 2016 will be its ability to raise revenues as the country is now facing a risk of overshooting its Budget deficit forecast of 5.9% after amendments to revenue proposals in the Budget 2016 were made, analysts and economists said last week.
Although the Budget 2016 initially aimed to boost revenue by 38 percent YoY to Rs. 2.032 trillion steered by a 23.4% YoY increase from revenue generated from taxes, the government has since amended several revenue proposals.
However, squashing concerns Finance Minister Ravi Karunanayake on December 19, the day the Budget was passed, told Parliament that the revenue lost by the amendments would be only Rs. 7 billion amounting to less than 1 percent of the estimated budget deficit of Rs.740 billion.
Meanwhile, flagging off this concern at the Economic Forum 2016 held last week, Chief Executive Officer and Managing Director at JB Securities (Pvt) Ltd, Murtaza Jafferjee, who moderated a panel discussion said that one of the bane Sri Lanka has been having in recent years was that it had a low revenue to GDP ratio, public debt is about 75% of GDP, debt to revenue is over 600% being the third highest in the world after Japan and Lebanon. He said that the existing tax system is where over 80% is raised from indirect taxation whilst incentives and tax free holidays had been given to encourage investments further curtailing the ability to raise tax revenue.
Outlining various mechanisms in which Sri Lanka could raise its revenues, renowned economist Joseph Stiglitz, explained some of the ways the government could raise them was by taxing environmental pollution, inelastic goods, land, consumption and road congestion.
“There are some positive aspects in the long term. First your major source of energy is the sun and not oil. If you could use solar energy, it will be a major advantage.It will send a clear message to the world that we are moving to a carbon free world and cutting the dependency on coal thus giving a relatively better advantage regionally,” the Nobel Laureate said.
Highlighting that there will be a spike in the consumption of food due to the booming population, he advocated Sri Lanka to boost agricultural activity and use exports as a base of raising revenue. He further noted that carbon taxes could help to address the problem of emitters of greenhouse gases not facing the full social cost of their actions.
Taxing inelastic goods, was another way to raise tax revenue that leads to less distortions, he said. A third possibility is land taxation which requires having a national land registry, Stiglitz said.
Meanwhile, Billionaire George Soros warned that global markets are facing a crisis and investors need to be very cautious. China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said at a panel discussion moderated by Ricardo Haussman and one which involved Professor Joseph Stiglitz and Prime Minister Ranil Wickremesinghe. Soros said a return to positive interest rates is a challenge for the developing world, adding that the current environment has similarities to 2008.
“China has a major adjustment problem. I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” Soros said.
Pics by Aruna Udaya Alwis