The country has lost about a million taxpayers in the past two years, according to the Minister of Finance
Finance Minister Ali Sabry told parliament that Sri Lanka had lost around 500,000 taxpayers each in 2020 and 2021 after the untimely tax cuts were put in place. In 2019, the Cabinet reduced VAT from 15% to 8% and also removed seven other taxes.
Finance Minister Ali Sabry told Parliament that Sri Lanka had lost around 500,000 taxpayers each in 2020 and 2021 after the ill-timed tax cuts were implemented – Twitter/@MOJSriLanka
Dove: Sri Lanka has lost an estimated 1 million taxpayers in the past two years after Gotabaya Rajapaksa’s regime announced sweeping tax cuts in 2019 in its bid to spur growth, Finance Minister Ali Sabry has revealed. as the island nation faced an unprecedented economic crisis.
These tax cuts were introduced in November 2019 in line with President Rajapaksa’s election promises.
The Cabinet had reduced value added tax (VAT) from 15% to 8% and had also abolished seven other taxes.
These sweeping tax cuts led to a credit rating downgrade the following year, which caused Sri Lanka to alienate itself from international financial markets.
Sabry told parliament on Thursday that Sri Lanka had lost around 500,000 taxpayers each in 2020 and 2021 after the ill-timed tax cuts were put in place.
From around 1,550,000 taxpayers at the start of 2020, that number has fallen to 1,036,000 in 2020 and 412,000 in 2021. This is a huge problem for us, Sabry told parliament on Thursday.
Sri Lanka’s foreign exchange reserves have fallen sharply from a healthy level of $8,864 million in June 2019 to $2,361 million in January 2022, according to official estimates.
The COVID-19 pandemic in March 2020 has only exacerbated the situation, with tourist inflows and foreign remittances being hit hard.
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Prolonged and intermittent shutdowns caused by the pandemic have prevented the economy from reaching what was initially expected from tax cuts, Sabry said, as quoted by the Daily Mirror newspaper.
The end-2019 tax cuts were made to all taxpayer citizens of the country to stimulate economic activity and thus use this revitalization as a launch pad for the country’s development. Due to the pandemic, it did not yield the expected 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 a country with one of the lowest income-to-GDP ratios in the world, and the 2019 tax cuts moved Sri Lanka closer to the bottom of that list, according to the report.
Thereafter, the government revenue to GDP ratio in 2021 would have decreased to 8.7% from 9.1% in 2020, while the tax revenue to GDP ratio in 2021 also decreased to 7.7%, it said. he adds.
On Wednesday, Sabry called the 2019 tax cuts a historic mistake. Going forward, the finance minister is expected to present a new budget for this year containing a higher tax regime, according to the Daily Mirror report.
“We bit off more than we can chew,” Sabry admitted to parliament on Wednesday.
Detailing the perilous state of the economy, Sabry, who has just returned from Washington after crucial talks with International Monetary Fund officials, said Sri Lanka’s usable foreign exchange reserves, which stood at around $7 billion USD in 2019, had fallen to less than USD 50 million now.
Sabry said cutting taxes when they should have been raised was a mistake.
“I admit it was a mistake. Instead of giving away a fishing rod, we are now living the end result of giving away a fish. Right now there isn’t even $50 million in reserves. liquids in the country,” he added.
Anti-government protesters are demanding the resignation of Prime Minister Mahinda Rajapaksa, who leads the powerful family that has held power for most of the past two decades, and his younger brother, President Rajapaksa.
So far, the Rajapaksa brothers have resisted calls to resign, although three other Rajapaksa out of the five lawmakers resigned from their cabinet posts in mid-April.
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