Sri Lanka’s Ministry of Finance is grappling with a significant tax revenue shortfall, which could lead to further economic strain and risk the next installment of the International Monetary Fund (IMF) loan. The Inland Revenue Department (IRD) was expected to collect 1,518 billion rupees between January and September 2023 but only managed to generate 1,423 billion rupees. This leaves a deficit of 75 billion rupees, making it difficult for the department to reach its full-year target of 2,024 billion rupees.
The overall revenue target for 2023, combining earnings from the IRD, Sri Lanka Customs, and the Excise Department, is 4,127 billion rupees. However, with this shortfall, achieving the IMF-agreed revenue goal of 13.2% of GDP seems unlikely. Current estimates suggest that the revenue might barely reach 12% of GDP, jeopardizing the receipt of the next tranche of IMF funds.
Adding to the government’s concerns, the IRD is dealing with 1,066 billion rupees in uncollected tax arrears, of which 657 billion rupees are from before 2013. Legal disputes, taxpayer appeals, and court cases have delayed the recovery of this outstanding debt.
To mitigate the crisis, the Ministry of Finance is considering the introduction of new taxes and issuing treasury bonds to make up for the revenue deficit. Economic experts warn that without swift action, the country’s fiscal stability could worsen, leading to further economic difficulties.
This issue is especially critical as Sri Lanka continues its efforts to recover from the economic crisis it faced in recent years. The IMF loan is crucial for stabilizing the country’s economy, and failing to meet the agreed revenue targets could delay the much-needed financial support.
In response, the Ministry is likely to make adjustments in tax collection and enforce measures to enhance revenue generation, alongside reforms in the tax system to ensure compliance with IMF requirements. The next few months will be critical in determining whether the government can close the gap and secure the funds necessary to keep the economy afloat.
