FISCAL POLICY DRAWING BOARD

Fazmina Imamudeen reviews the aims and objectives of Sri Lanka’s Budget 2023

After black swans had loomed large, Sri Lanka’s Budget 2023 offers the country a glimmer of hope that it can eventually emerge from its economic abyss.

President Ranil Wickremesinghe assumed office in July 2022 and proposed an interim budget in August to cover the last four months of the year. Former President Gotabaya Rajapaksa had fled the country in July in the face of mass protests over an economic crisis that created significant shortages of food, fuel, gas and medicines.

Then later in November, President Wickremesinghe, who is also Minister of Finance, submitted the annual national budget proposals that aim to reactivate international loans and reduce the country’s debt trajectory.

In the light of the government’s efforts to secure an Extended Fund Facility from the International Monetary Fund (IMF), Budget 2023 includes measures to lower the government deficit. This suggests that the primary consideration is Sri Lanka’s economic recovery in line with the IMF’s requirements.

The 2023 national budget places a premium on economic reforms and reorganisation. One of the initiatives to achieve this goal will be the establishment of a presidential commission to review all aspects of public service and recommend reforms. A second commission will be established to advise on changes that need to be made to the tax structure and institutions, and procedures that must be implemented to increase state revenue.

This budget covers the operations of 420 government institutions and businesses in Sri Lanka. According to KPMG Sri Lanka, Rs. 86 billion is lost annually by the country’s 52 largest state owned enterprises (SOEs). As a result, there are plans to restructure these SOEs in the hope that the proceeds from the sale of SriLankan Airlines, Sri Lanka Telecom, Hilton Colombo, Waters Edge and Sri Lanka Insurance Corporation can be used to bolster the country’s foreign exchange reserves.

There are also plans to establish an external trade and investment agency to improve collaboration across existing departments.

Another proposal addresses the creation of economic zones in the Western and North Western provinces, Hambantota and Trincomalee with each area being subject to new regulations as rendering the economy sustainable lies at the core of these plans.

Moreover, public private partnerships (PPPs) will be established to carry out research and development (R&D) activities aimed at the commercial production of green hydrogen as a clean energy source as it only emits water vapour and leaves no residue in the air.

The country’s severe economic distress has been largely attributed to the irresponsible tax cuts previously implemented. Tax administration will now be strengthened through investments in technology, rules, process improvements and human resources for the Inland Revenue Department (IRD), Sri Lanka Customs and the Department of Excise.

Sri Lanka’s ability to meet its interest payments will also be monitored, as analysts have stated that it is unlikely that the nation will be able to make significant cuts to expenditure in its welfare programmes. As a result, tax collection will now play a critical role in filling the nation’s coffers.

Several proposals have been made to increase the effectiveness of the tax system. These include implementing a mandatory electronic tax filing system for non-corporate taxpayers; introducing a risk-based tax audit and verification programme; discovering new ways to collect data from relevant institutions to expand the tax base; and promoting bank and card transactions over cash.

On a positive note, there’s a suggestion for the appointment of a tax ombudsman who will be able to address the issues and complaints raised by taxpayers. In addition, a Charter that will outline the rights and responsibilities of taxpayers will also be presented.

Wickremesinghe has proposed some lofty budget numbers. He has outlined many intermediate goals for the administration including boosting international trade as a percentage of GDP by more than one hundred percent, growing exports by US$ 3 billion annually over the next 10 years, and attracting three billion dollars in foreign direct investments (FDIs) over the same period of time.

After deliberating for seven days, parliament approved Budget 2023 with a majority of 37 votes – 121 in favour and 84 against. Sri Lanka has nothing left to lose by giving everything a chance including putting its budget to the test.

The people will need to hold firmly on to hope – for prosperity and reward for their labours.