The International Monetary Fund (IMF) is to provide technical assistance focusing on more comprehensive reforms to streamline the tax system and put the country’s revenue on a steady path, an IMF official said in Colombo on Wednesday. The technical assistance missions of the world body will pay attention on tax policy and administration, public financial [...]

The Sunday Times Sri Lanka

IMF mission says one-off Sri Lankan taxes ineffective

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The International Monetary Fund (IMF) is to provide technical assistance focusing on more comprehensive reforms to streamline the tax system and put the country’s revenue on a steady path, an IMF official said in Colombo on Wednesday.

The technical assistance missions of the world body will pay attention on tax policy and administration, public financial management, and financial sector supervision.

The IMF and the government authorities during meetings here did not focus attention on a structural adjustment facility amounting to US$ 4 billion sought by the Sri Lankan government, he revealed.

This matter was not even discussed during talks held in Washington recently by Finance Minister Ravi Karunanayake and Central Bank Governor Arjuna Mahendran with the IMF, Todd Schneider, who led an IMF mission to Colombo, told reporters.

Meanwhile Mr. Karunanayake told the Business Times on Thursday that his discussions with the IMF officials in Washington were centred on technical assistance for structural adjustment issues and not a $4 billion facility as reported earlier.

The government has sought financial assistance from the World Bank and not from the IMF, he added.

Mr. Karunanayake last month met IMF Managing Director Christine Lagarde, the World Bank’s Managing Director Sri Mulyani Indrawati, and US Assistant Secretary for Treasury Ramin Toloui as well as US Assistant Secretary of State for South and Central Asia Nisha Biswal and the senior officials of the White House.

A discussion on post programme monitoring by the IMF Executive Board is expected in

late April.
However the mission highlighted several concerns on the interim budget including one-off tax measures to raise revenue.
“The one– off tax measure introduced to finance the Interim Budget does not, in the mission view, constitute a step towards a more effective tax system,” Mr. Schneider said.
The mission and Sri Lankan authorities agreed that medium term fiscal consolidation should remain a linchpin in macroeconomic policy ensuring a durable reduction in the country’s public debt. The two sides also agreed on the need for more comprehensive reforms to streamline the tax system.
The IMF mission head noted that Sri Lanka should take contingency measures in achieving the interim budget deficit target of 4.4 per cent of GDP if revenues fail to materialise as planned.

He noted the decline in Central Bank foreign exchange reserves over the last six months and emphasised the need for exchange rate flexibility while highlighting the need to preserve the country’s cushion of foreign exchange reserves.
The exchange rate does not appear to be out of line with fundamentals, particularly given the improvement in the balance of payments, he pointed out.

Sri Lanka’s real GDP growth was estimated at 7.4 per cent for 2014 and is likely to continue in the relatively robust range of 6-7 per cent in 2015.
Inflation is expected to remain in low single-digits, although some upward pressure may emerge as higher wages and salaries translate into increase demand, he revealed.

The external current account improved in 2014 and will likely strengthen further in 2015 given lower oil prices and further growth in exports, services trade and inward remittances.

The mission agreed with the authorities that prospects remain favourable and that sustaining robust growth over the medium- term will require continued commitment to policies in support of macroeconomic stability and structural reforms to enhance productivity and competitiveness.

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