“The interim budget attempts to bring changes into both the revenue and expenditure streams, to make these more contemporary and relevant to the current context of the economy,” opined Brandix Lanka’s Group Finance Director and Chief Strategy Officer Hasitha Premaratne, in reviewing the recently tabled 2022 interim budget proposals.

He added: “It’s not a growth budget as it addresses more of the short-term issues of the nation.”

The welfare allocation for instance, could be viewed as a negative; but from an economic perspective, it is needed at this stage as it’s necessary to support the lower income bracket, which otherwise would suffer due to inflation.

“With how inflation is going at nearly 90 percent on food – and average inflation at almost 60 percent – naturally, there has to be support through the budget. It’s important to understand the impact of some of these tax changes, particularly with indirect taxes: value added tax (VAT) and the social security levy. These will make goods in general expensive to everybody,” he pointed out.

He noted: “There are significant changes to the tax regime; be it with regard to individual income tax, corporate tax or indirect taxes.” And Premaratne cautioned that it may be a challenge to rapidly adapt the Inland Revenue Department’s (IRD) technology, remittance systems and tax administration to these changes.

Looking at the interim budget strategically, Premaratne said that it is “a platform from which to progress with the IMF staff level agreement and proposals as it primarily addresses these – and it’s those propositions that are mainly articulated in the interim budget.” He is of the opinion that budgetary and tax policy changes of any significance should not be anticipated for 2023.

On the increase in corporate taxes, it was his perspective that “the business community understands the current situation the country is in, that the government’s budget deficit is too wide to live with, which means you’ll have to increase taxes in some form or the other… what’s important is to have consistency in tax structures and a framework that enables businesses to plan for the long term.”

“I think the corporate tax regime has been on a rollercoaster ride, and this brings inconsistency to business planning and budgeting. What you want to see is consistency – it’s not about whether the tax rate is high or low – consistency matters most because then you can plan investment decisions that need to be taken,” he elaborated.

Premaratne described the current situation as “a double whammy” with the increase in income taxes and significant strain on the cost of living due to high inflation. And he suggested that the government consider a time frame within which these high tax rates will be applicable, and noted that the short-term implications will impact consumption and the economy.

“The introduction of withholding and PAYE taxes back into the mandatory scheme will help manage tax evasion to a large extent. And digitalisation of the system is important to widen the tax net and ensure tracking of all taxpayers,” he stated.

Commenting on the aim to reduce public sector debt from 110 percent to100 percent of GDP, Brandix Lanka’s Group Finance Director averred that “one of the biggest challenges the government and finance ministry will face in the next six to 12 months is structuring and setting up a platform that will lead to achieving realistic debt-GDP ratios in the next five to 10 years.”

Premaratne concluded his interview with LMDtv by emphasising the importance of focussing on a realistic ratio, and said he believes that “debt to GDP is a crucial metric to consider in the next six months with the debt restructuring schemes in place.”

“I think the IMF programme will play a vital role in how that needs to be structured and done, and the government should look to financial advisors for advice,” he added.