Skip to main content

Advertisement

Advertisement

Bankrupt Sri Lanka hikes taxes

COLOMBO — Cash-strapped Sri Lanka on Tuesday (May 31) announced steep, across-the-board tax hikes to shore up revenue as the country suffers its worst economic downturn and seeks an International Monetary Fund (IMF) bailout.

Police use tear gas shells to disperse students taking part in an anti-government protest demanding the resignation of Sri Lanka's president Gotabaya Rajapaksa over the country's crippling economic crisis, in Colombo on May 29, 2022.

Police use tear gas shells to disperse students taking part in an anti-government protest demanding the resignation of Sri Lanka's president Gotabaya Rajapaksa over the country's crippling economic crisis, in Colombo on May 29, 2022.

COLOMBO — Cash-strapped Sri Lanka on Tuesday (May 31) announced steep, across-the-board tax hikes to shore up revenue as the country suffers its worst economic downturn and seeks an International Monetary Fund (IMF) bailout.

The value-added tax (VAT) applied on almost all goods and services was raised from 8.0 per cent to 12 per cent with immediate effect, while corporate taxes were also increased from 24 to 30 per cent.

The personal income tax exemption threshold was lowered from 3.0 million rupees (S$11,400) a year to 1.8 million rupees.

The increases were a rollback of the generous cuts ordered by president Gotabaya Rajapaksa soon after he won the November 2019 elections.

Prime minister Ranil Wickremesinghe, who is also the finance minister, said Mr Rajapaksa's tax cuts cost the state some 800 billion rupees annually and widened the budget deficit sharply.

International rating agencies, as well as independent economists, have pointed to Mr Rajapaksa's fiscal policy as having fuelled the current financial crisis.

Mr Wickremesinghe, an opposition legislator, was made prime minister this month.

His predecessor and the president's elder brother Mahinda stepped down after months of anti-government protests turned deadly.

The South Asian nation is in talks with the IMF for a bailout after running out of dollars to pay even for the most essential imports such as oil, food and medicines.

Sri Lanka has also defaulted on its US$51 billion foreign debt.

Mr Wickremesinghe said he was also removing several tax breaks granted to companies in recent years.

The government did not say how much it will raise from the new tax measures.

However, the prime minister had said they had run out of rupees to pay the salaries of 1.5 million civil servants and would have to "print money". That would in turn fuel inflation, which is already at a record 33.8 per cent. AFP

Related topics

Sri Lanka taxes

Read more of the latest in

Advertisement

Popular

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.