Categories: Economy

Stern IMF cracks the whip on Sri Lanka–asks debt-ridden Colombo to raise taxes

<p>
<strong>Debt ridden Sri Lanka, which is now looking for financial assistance from multilateral lenders including the International Monetary Fund, has finally decided to increase tax rates. The IMF has prescribed structural reforms including overhauling the tax regime. Sri Lanka’s tax to GDP ratio is one of the lowest due to various populist measures undertaken by the Rajapaksa Gotabaya government.</strong></p>
<p>
The Gotabaya government has now constituted a panel to look into the issue.</p>
<p>
<a href="https://thediplomat.com/2022/03/sri-lanka-and-the-neocolonialism-of-the-imf/">The Diplomat</a> in a report said that “mismanaged government finances and ill-timed tax cuts,” have led to the problem.</p>
<p>
Sri Lanka has earlier shown its unwillingness to seek assistance from the IMF.</p>
<p>
<strong>Also read: <a href="https://www.indianarrative.com/world-news/is-rajapaksa-waiting-for-loans-to-placate-people-and-stave-off-challenges-to-power-162826.html">Is Rajapaksa waiting for loans to placate people and stave off challenges to power?</a></strong></p>
<p>
With a view to generating revenue on an immediate basis, Colombo has also decided to implement surcharge on a retrospective basis. Businesses as well as individuals who have earned more than 2 billion Sri Lankan rupee in 2020-21 could be charged with an additional 25 per cent tax. This could help the government garner 100 billion Sri Lankan rupees in the near term.</p>
<p>
The IMF said that Sri Lanka is facing solvency issues primarily due to unsustainable debt levels.</p>
<p>
The island nation’s foreign exchange reserves dropped to just $1.93 billion in March from $2.3 billion in February, crippling Colombo’s ability to import essential items including food, fuel and medicines. India has already provided a $1.5 billion line of credit to the country.</p>
<p>
Even before Sri Lanka was hit by the Covid 19 pandemic, red lines had started to appear in the economy. “The pandemic has only expedited the fall in the economy,” an insider said.</p>
<p>
Sri Lankan economy is now facing a twin challenge of fast eroding foreign exchange reserves and surging inflation.</p>
<p>
Sri Lanka's total debt burden for this year is $6.9 billion. The next payment deadline of $1 billion is due in July. In January, the country averted a default by repaying $500 million international sovereign bond. </p>

IN Bureau

Recent Posts

Foreign Secy to brief parliamentary panel on India’s ties with Canada, China

Foreign Secretary Vikram Misri is likely to tomorrow brief the Parliamentary Standing Committee on External…

2 hours ago

PoGB Lawyer condemns land reform bill, calling it “against natural justice”

Renowned lawyer Ashfaq Ahmed Advocate has condemned the proposed Gilgit-Baltistan Land Reform Act 2024 and…

2 hours ago

J-K: Encounter breaks out between security forces and terrorists in Bandipora

An encounter broke out between security forces and terrorists in the Ketsun forest area of…

3 hours ago

LG Ladakh inaugurates 4th LG Horse Polo Cup, Ladakh’s first Polo Stadium in Dras

Lieutenant Governor of Ladakh, Brigadier (Dr) BD Mishra inaugurated the 4th LG Horse Polo Cup…

4 hours ago

Last set of disengagement between India, China concluded on October 21, says EAM Jaishankar

India and China concluded the last lot of disengagement on October 21 and the implementation…

6 hours ago

Pakistan: Baloch activist expresses outrage over Mastung bomb blast

Baloch "pro-independence" leader Allah Nazar Baloch has expressed outrage over the recent bomb blast near…

6 hours ago