Foreign interest payments up by 13.9 percent

Foreign interest payments, which represent 4.7 percent of Sri Lanka’s total interest payments, have increased by 13.9 percent to Rs. 34.0 billion in the first four months of 2024, compared to the same period of 2023, according to the Mid-year fiscal position report–2024, presented by the Ministry of Finance to Parliament recently. Recurrent expenditure, which accounted for around 90 percent of Sri Lankan government’s total expenditure in the first four months of 2024, declined by 4.4 percent to Rs. 1,419.3 billion from Rs. 1,485.0 billion recorded in the same period of 2023.

 This was primarily led by the decline of 11.3 percent in interest expenditure to Rs. 726.1 billion from Rs. 819.0 billion in the same period of 2023, and is attributable to the decline in domestic interest payments by 12.3 percent to Rs. 692.1 billion due to the decline in domestic interest rates and the effects of the completion of Domestic Debt Optimization (DDO), the report said. However, foreign interest payments, which represent 4.7 percent of total interest payments, have increased by 13.9 percent to Rs. 34.0 billion. Non-interest recurrent expenditure increased by 4.1 percent in the first four months of 2024 compared to the same period of 2023 with the increase of expenditure on goods and services by 12.5 percent to Rs. 99.8 billion from Rs. 88.7 billion and the increase of expenditure on subsidies and transfers by 6.4 percent to Rs. 291.5 billion from Rs. 274.0 billion.

Expenditure on salaries and wages declined by 0.5 percent to Rs. 301.8 billion in the first four months of 2024 from Rs. 303.3 billion in the same period of 2023 owing to the effects of limiting new recruitments to essential positions and effective management of cadres. Capital and Net Lending declined by 0.4 percent to Rs. 159.9 billion in the first four months of 2024 from Rs. 160.6 billion in the same period of 2023. This was marked by a decline in transfers to public institutions, provincial councils, and net lending, despite the increase in expenditure for the acquisition of fixed assets by 20.8 percent.

Meanwhile, total Government revenue excluding grants increased by 48.3 percent to Rs. 1,216.0 billion in the first four months of 2024 compared to Rs. 820.1 billion in the same period of 2023 mainly due to the increase in tax revenue by 50.5 percent to Rs. 1,117.8 billion from Rs. 742.6 billion.

The increase in tax revenue was led by the increase in revenue from: 1) VAT by 89.5 percent or 199.7 billion driven by the increase of the VAT rate to 18 percent from 15 percent with effect from January 1, 2024, reduction in the VAT registration threshold from Rs. 80 million per annum to  Rs. 60 million per annum with effect from January 1, 2024, removal of the vast majority of VAT exemptions with effect from January 1, 2024 and the increase in imports by 9.5 percent in the first four months of 2024 compared to the same period in 2023;2) Income taxes by 27.3 percent or Rs. 52.3 billion due to the realization of the full impact of the tax policy changes that were made effective on January 1, 2023, but were reflected in increases of revenue from February 2023 onwards, impacts of increased wages both in the public sector and informal private sector (Year-on year increase of the public sector and informal private sector nominal wages rate indices were 10.6 percent and 7.1 percent, respectively in February 2024), positive impact of the increased economic activity and return to economic growth on the corporate and personal income taxes;3) Excise Duty on Petroleum by 165.7 percent or Rs. 46.0 billion driven by the increase in petroleum imports by 14.4 percent in the first four months of 2024 compared to the same period in 2023 and the net increase in Excise Duty rates with the increase of rates for petrol and diesel by Rs. 25 per litre on June 1, 2023 and the decrease of rates for Diesel by Rs. 6 per litre and for Petrol by Rs. 5 per litre on January 1, 2024;4) SCL by 107.4 percent or Rs. 16.0 billion driven by the rate increases for sugar and potato to Rs. 50 per kg and the increase in the volume of imports in major commodity items;5) CID by 68.5 percent or Rs. 13.9 billion due to the increase in CID rates from 0:10:15 percent to 0:15:20 percent effective from March 28, 2023, and the increase in imports;6)  SSCL by 19.3 percent or Rs. 13.5 billion due to the increase in the number of taxpayers with the lowering of the registration threshold from Rs. 120 million per annum to Rs. 60 million per annum with effect from January 1, 2024 and the impact of the increase in imports;7) Excise Duty on liquor by 20.6 percent or Rs. 12.0 billion due to the realization of the full impact of excise duty rate revisions on liquor implemented with effect from July 1, 2023, the indexation of Excise Duty to inflation and increase of excise duty rates by 14 percent on January 1, 2024, and the revision of annual excise license fees with effect from January 12, 2024; and8) CESS by 64.3 percent or Rs. 10.7 billion due to the increase in imports.

The increase of non-tax revenue by 26.8 percent or Rs. 20.8 billion in the first four months of 2024 also contributed to the increase in revenue. This was led by the increase in revenue from interest by Rs. 11.5 billion, fines, fees, and charges by 8.6 billion and profits and dividends by 3.7 billion. (SI)