The IMF is happy even if Sri Lanka and China negotiate independently so long as there is even-handed treatment in debt restructuring, IMF Senior Mission Chief for Sri Lanka Peter Breuer said.
“We took note of a tentative agreement between Sri Lanka and the Export-Import Bank of China and will analyze the details when we receive them. We urge all official creditors to move forward and agree on an appropriate debt treatment in line with the financing assurances they provided.”
Breur was speaking on October 20 at the Press Briefing of the First Review of Sri Lanka’s Extended Fund Facility Arrangement.When questioned about potential uneven treatment he later added, “The IMF is very sensitive to that question, whether countries are being treated in an even-handed manner, given the circumstances that they are in. And, of course, in Sri Lanka, we follow that principle as well. Indeed, we have a department, a Strategy, Policy and Review Department, that has one of its key missions to ensure even-handed treatment of countries and we follow that principle in Sri Lanka very closely.”
Commenting on another area he said, “Sri Lanka is a country with one of the lowest taxes in the world, and that was a key contributor to the crisis, especially when taxes were lowered even further in 2019, and then, shocks hit, the country couldn’t handle it. And so, that was a key contributor to the crisis. The program is all about addressing the root causes of the crisis. Raising revenue is a key element of it.”
Breuer expects additional taxes in the upcoming budget.
“We are of course looking for a strong budget that can achieve that with of course the objective being that the gap between expenditures and revenues needs to be narrowed so that Sri Lanka can once again find creditors who are willing to finance the remaining gap,” he said.
(TP)
Introduction of property and wealth taxes to take time – IMF
The recent IMF Staff Level Agreement reached on the first review of Sri Lanka’s extended fund facility arrangement does not expect the implementation of a property or wealth tax in 2024. Due to the complexity of computing and collecting the proposed tax, there would need to be multiple years of preparatory work and consultation before it is enforced. It is envisioned that the framework will be ready by 2025.
IMF Senior Mission Chief for Sri Lanka Peter Breuer said, “Property tax is something that is in the program, but not quite yet.”
The IMF Statistics Department has been closely engaged with the authorities in various areas, including national accounts, price statistics, government finance statistics, and monetary accounts. From 2019 to 2021, assistance was provided to the CBSL to develop new residential property price indexes. However, this is still vastly insufficient to form the basis for a system of taxation and further raises constitutional concerns over which level of government (national, provincial, or municipal) would have control over residential taxation.
Breuer however noted the importance of the new avenue of tax. He said, “It is, in fact, important for the Sri Lankan authorities to make preparations. The IMF is also providing some technical assistance.”
Breuer did not expect the tax to be coming to upcoming budgets. He said, “This is something that takes a lot of time to put into place.”
Given the constitutional complexity, any changes to land taxation would be impacted by the Provincial Councils. To impact the health of national finances these revenues would have to be up-streamed to the Treasury which would be a reversal of the current net flow to the Provinces by the Treasury.
Breuer was however insistent on the tax. He said, “It’s envisaged that, in 2025, property tax would be a key source of additional revenue in that year.” (TP)
1 comment
I think Breuer must take his tax and return to the US. He CONVENIENTLY FORGETS that we are a underdeveloped Country still recovering from one of the worst Financial Crises that hit a Country, albeit it was our bringing it upon ourselves. The people need to recover slowly and so must the Country. We cant rush into recovery, as what Breuer is trying to do, probably trying to accelerate his recovery of the money that his patrons have put into it. We use “water and not Toilet paper as he and his like does”