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Prez insists on IMF approved new tax regime, warns of dire consequences unless fully implemented

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President Ranil Wickremesinghe, in a televised statement yesterday (18), warned that Sri Lanka wouldn’t be able to obtain assistance of the IMF, or any other lending agencies, or countries, if tough new tax regime was not implemented.

The President said: “If we withdraw from this programme, we will not receive assistance from the IMF. If we don’t get the IMF certification, we will not get the support of those international institutions, such as the World Bank, and Asian Development Bank, and the countries that provide support. If that happens, we will have to go back to the era of queues.

“We may have to face even tougher times ahead. We have to obtain these loans and go for the debt-restructuring programme. We are not doing these wilfully. We have to take certain decisions, even reluctantly.

“However, we will reconsider these decisions periodically.”

The following is the full text of the President’s statement: “An important step in Sri Lanka’s debt restructuring program took place last week. A team under our Minister of State for Finance participated in the annual (October 07) meeting of the International Monetary Fund. Accordingly, a meeting was held under the leadership of the International Monetary Fund, with the countries that had given loans to Sri Lanka and some private institutions that had also given loans.

Over 75 persons participated directly or through zoom technology. The primary purpose of this was to come to a common platform with the 03 main countries that have granted loans to Sri Lanka, namely Japan, China and India, and discuss the next steps to be taken to provide these concessions.

During this meeting, the International Monetary Fund and Sri Lanka pointed out the need for a common platform. India and China have informed us that they will investigate further and provide answers. These two countries have also informed us that bilateral discussions may be required.

Many other countries also participated in this meeting. It is notable that, an Assistant Secretary of the United States Treasury came here. All this was possible because we are implementing the decisions taken in consultation with the International Monetary Fund.

There is one thing about the income of the Government of Sri Lanka. In 2015, when the representatives of the International Monetary Fund came to Sri Lanka, we were told of the need for a surplus in the primary budget. Therefore, we provided that surplus in 2017-2018. But it was reduced as a result of the 2019 Easter Sunday bombings. However, there were no serious issues. They were optimistic that we would be able to increase our revenue, to have a surplus in the primary budget.

At the time, our income was between 14.5% and 15% of the Gross Domestic Product (GDP). However, we agreed that we can gradually increase this to 17%-18%.

However, in November 2019, the country’s taxes were drastically reduced. Then the government revenue decreased to 8.5%. There, the International Monetary Fund declared that it is unable to provide aid because of these agreements.

That year we lost around Rs. 600-700 billion. Simultaneously, we had to face the Covid pandemic. These issues are the main factors that led to the collapse of Sri Lanka’s economy.

The International Monetary Fund notified us that we need to show a surplus in our primary budget. We agreed to it because we needed their support.

The other factor is that it was decided to increase the country’s income from 8.5% to 14.5% of the GDP. It’s impossible to do it all at once. We have planned to increase the country’s income to 14.5% of the GDP by 2026.

Initially, we had to think about how we were going to increase our income. We have printed money because our income decreased. During the past two years, Rs. 2300 billion has been printed. As a result, inflation has risen to 70% – 75%. Food inflation has increased even more.

These need to be controlled, but we also need to secure our income. Therefore, a new tax system was proposed during these discussions. The International Monetary Fund had notified that even the export industries are required to pay taxes.

It was indicated especially in countries with an export economy, taxes are being paid. The IMF also pointed out that our primary export economy was the plantation industry. During British rule, taxes were charged from every plantation sector, including tea, coconut and rubber. Therefore, we decided that if we are to move towards that goal, we will have to pay taxes. The export sector has now questioned this move and if these facts are to be submitted to the International Monetary Fund, we have discussed carrying out an analysis.

The second matter is individual taxes. We have obtained the majority of taxes through indirect taxing. Even the majority of the country’s people below the poverty line had no choice but to pay taxes indirectly. Our direct tax revenue is 20%. 80% which was derived from indirect taxes. The International Monetary Fund had specific questions about it and they were of the view that the amount of tax obtained from direct taxes should exceed 20%. Otherwise, they noted that this would not be successful, as ordinary citizens would be forced to pay taxes.

Therefore, according to this mechanism, and to achieve the goals of 2026, the treasury and the International Monetary Fund discussed the possibility of limiting the taxation from those who have an income of 02 lakhs, but that was not possible. Eventually, income tax was levied on people earning over 100,000. Today, this has become a huge problem in the country.

I would like to point out that based on this backdrop, we may not be able to achieve the desired goals without this tax system. The desired goal is to achieve 14.5% – 15% gross domestic product (GDP) revenue by 2026.

If we withdraw from this program, we will not receive assistance from the IMF. If we don’t get the IMF certification, we will not get the support of those international institutions such as the World Bank, and Asian Development Bank, and the countries that provide support. If that happens, we will have to go back to the era of queues.

We may have to face even tougher times ahead. We have to obtain these loans and go for the debt-restructuring program. We are not doing these wilfully. We have to take certain decisions even reluctantly. However, we will reconsider these decisions periodically.

While successfully conducting our debt restructuring program, we expect to move forward through the economic success achieved through a bountiful Maha season. This will help reduce our economic pressure. We have also discussed measures to increase our foreign reserves. Once we have implemented these measures, we can move forward.

We are in a difficult period. We will have to make tough decisions during these difficult times. I took on this difficult task when no one else was willing to come forward. Hence, I feel I must enlighten everyone regarding this background. The government is ready to discuss this further.



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Trains on northern railway line will end at Mahawa for five months from 15th January 2023

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Minister of Transport and Highways Dr Bandula Gunawardena told Parliament today (28) that trains on the Northern railway line will end at Mahawa for a period of five months commencing 15th January 2023.

The Minister said that repairs to the railway line between Mahawa and Jaffna will commence on 15th January and will be completed within a period of five months.

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SLPP dissidents ask govt. to bring back USD 35 bn ‘parked’ overseas

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underscore need to amend Exchange Control Act

By Shamindra Ferdinando

MP Gevindu Cumaratunga, who represents the SLPP dissidents, yesterday (27) alleged that the incumbent government was yet to bring enough pressure to bear on those who had parked as much as USD 36 billion overseas to bring the money back.Cumaratunga said the government’s failure to amend the Exchange Control Act No 12 of 2017 should be examined against the backdrop of President Ranil Wickremesinghe’s Budget proposal to draw more loans in 2023.

The leader of the civil society group Yuthukama, Cumaratunga, who represents the Uththara Lanka Sabhagaya, one of the breakaway factions of the ruling SLPP, said that two of his colleagues, Vasudeva Nanayakkara and Wimal Weerawansa, had, during the ongoing Budget debate, had raised the issue of forex stashed away overseas.

Cumaratunga said that he couldn’t comprehend why the government delayed making it mandatory for exporters to bring back much required foreign exchange.Responding to The Island queries, lawmaker Cumaratunga emphasised that though the vote on the Second Reading of the Budget was approved on Nov. 22, with a majority of 37 votes, it failed to address even the basic issues. Cumaratunga was among 84 MPs who voted against the Budget whereas it received the backing of 121 lawmakers.

The other Yuthukama MP in Parliament Anupa Pasqual, now a State Minister, voted for the Budget.The parliament couldn’t absolve itself of the responsibility for taking immediate measures to amend the Exchange Control Act No 12 of 2017, the MP said, pointing out in terms of Article 148 that dealt with public finance this issue should have been addressed long ago.

Cumaratunga was not an MP at the time the Yahapalana administration introduced that controversial legislation.The first-time entrant to Parliament said that the government was on its knees before the International Monetary Fund (IMF) for USD 2.9 bn spread over a period of four years, whereas exporters deliberately denied the country more than 10 times that amount in much needed forex.

Addressing the Parliament during the debate on the Budget, lawmaker Cumaratunga questioned the role played by the then Finance Minister Ravi Karunanayake in introducing the questionable piece of legislation.  Cumaratunga slammed Foreign Minister Ali Sabry, PC, who previously held the Finance portfolio for ignoring the contentious issue of massive amount of money ‘parked’ overseas by exporters.

Declaring that Sabry hadn’t been involved with the then Joint Opposition following the 2015 change of government, lawmaker Cumaratunga questioned the circumstances under which the prominent President’s Counsel entered politics. The activist asked whether it was fair to accommodate Sabry on the SLPP National List in return for his role as leading lawyer for Gotabaya Rajapaksa, and his current role.

During two speeches in Parliament, MP Cumaratunga dealt with several contentious issues, including an alleged move to deprive farmers of their land. The outspoken MP warned the government of dire consequences of a decision regarding state land that was to be taken soon, while appealing for Premier Dinesh Gunawardena’s intervention.

Referring to a steep increase in the allocation made to the President at the 2023 Budget, MP Cumaratunga said that the President received Rs 2,467 bn last year, Rs 3,044 bn this year and a staggering Rs 7,888 bn next year.

Appreciating a significant drop in the allocation made for the Premier, MP Cumaratunga said that the ministerial staff received Rs 132 bn last year, Rs 217 bn this year and Rs 263 bn next year. Such allocations should be studied taking into consideration the state of the national economy, lawmaker Cumaratunga said, alleging that the Budget didn’t reflect the actual situation.

The MP said that having received the executive presidency, through a vote in Parliament on July 20, to complete the remainder of Gotabaya Rajapaksa’s five-year term, the UNP leader was pursuing an agenda contrary to what he preached as Premier (May 12-July 13, 2022).

Referring to statements made by Wickremesinghe during that period pertaining to the then proposed 21st Amendment to the Constitution, MP Cumaratunga questioned the rationale in the President holding onto the Finance portfolio. The MP said as Premier Wickremesinghe continuously expressed the view that the President shouldn’t hold any Cabinet portfolio. The MP said that they were of the view that the President should hold the Defence portfolio. Having vowed to strengthen Parliament, President Wickremesinghe could justify his role as the Finance Minister. The President holds several other ministerial portfolios for want of an agreement with the SLPP pertaining to sharing of portfolios.

Referring to the Budget declaration that the government intended to procure Rs 1,000 bn in loans and settle loans amounting to Rs 440 bn, MP Cumaratunga said that the bottom line is the increase in debt. “Aren’t we getting further embroiled in a debt trap?” he asked.

MP Cumaratunga strongly criticized the government for planning to open Mahaweli lands to outsiders. The declaration that profit-making Sri Lanka Telecom and Sri Lanka Insurance would be privatized, on the pretext of restructuring, came under fire by the MP, who also expressed serious concerns over the proposed privatization of Hilton as well as profit-making sections of SriLankan Airlines.

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Security stickers on bottles of liquor: The corrupt make a killing – Buddhika

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More than 100,000 bottles of liquor with fake security stickers are currently in the market, says SJB Matara District MP Buddhika Pathirana. Addressing the media at the Opposition Leader’s office in Colombo, recently, Pathirana said the security sticker racket has deprived the state coffers of billions of rupees in taxes.

“Leading liquor manufacturers are carrying out this racket with the help of some corrupt Excise officials. The business of counterfeit security stickers is far more lucrative than producing dud notes.  The QR codes printed on the so-called security stickers cannot be read by QR reader apps in mobile phones. Now, a lot of people know how to use mobile phones to scan QR codes to access information contained therein. Many software companies as well as open sources offer QR reader apps free of charge to be downloaded to the mobile phones.

“We have been warning of this security sticker project since inception. We have also warned that the company selected for printing QR code stickers for liquor is under a cloud.”

Pathirana said that State Finance Minister Ranjith Siyambalapitiya too had admitted that artificial toddy is for manufacturing arrack. “Minister Siyambalapitiya has stated that the country’s liquor industry needs at least 150,000 liters of toddy a day but only 45,000 litres can be produced from the coconut palms in the country, and the shortfall is met with artificial toddy. I know that he too is now in a position where he cannot fight against the racketeers because the Finance Ministry officials do not support him,” Pathirana said.

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