Introducing a new Central Bank Act covering all banks and finance companies is expected to improve banking sector stability and avoid politicization of monetary policy.
This will also reduce money printing, First Capital Research said, airing their views on the Interim Budget that was presented on Tuesday by President and Minister of Finance Ranil Wickremesinghe. Allotment of 20% shareholding in state banks to the depositors and staff of those banks will strengthen capitalization requirement as new shares are issued. Analyzing the VAT increase to 15 % from the current rate of 12 % with effect from today (1) First Capital said that it is expected to raise prices while discouraging consuming goods and services leading to deterioration in top line and earnings.
The proposal for compulsory tax registration for all residents who are above 18 years of age without considering their annual income and tax-free thresholds may lead to reduction in disposable income and could result in lower demand for goods and services.The proposal to take actions to attract foreign investors and/or technology holders to establish joint ventures with Sri Lankan partners for industrial investments with advanced technologies to ensure better utilization of mineral resources and increase value addition will lead to use of advanced technology to result in higher value addition for products made in Sri Lanka. First Capital hailed the proposal for the transportation of 21 goods by railway (vegetables, fruits, flowers and tea products from the upland areas to Colombo and urban areas). Through this, waste, delays and costs can be minimized. “It will also help to minimize transportation cost and will create an efficient supply chain. The strategy is also aiming at gradually reducing extreme risk created in the economy due to the massive budget deficits which has invariably resulted in a continuous piling of debt.
In the Medium-Term Macro Fiscal Framework, the Government’s aim is to further raise revenue to reach 15 % of GDP by 2025 while targeting a primary surplus of more than 2% of GDP in 2025. Consequently, the Government aims at reducing the public sector debt from around 110 % of GDP as at end 2021, to no more than 100 % of GDP in the medium term, the report said. As per the revised budget, the Government’s total revenue and grants amounts to 8.8% of GDP amounting to Rs 2,094 billion for 2022 with 88.4% of the revenue expected through taxes, while Taxes on Goods and Services continuing to take the top slot contributing 52.5% of tax revenue and 46.4% of total revenue and grants. Non-tax revenue is forecasted to be 11.1% of the total expected government revenue.
“The Government’s fiscal strategy is emphasizing on improving revenue on multiple angles and focusing on creating structures and committees to facilitate economic reform.”
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