Broadening the tax base may have been the government’s primary goal, but it is also looking to address income inequality and social inequality through targeted transfers, said Inland Revenue Department Assessor Thanuja Perera, speaking on the budget of 2025 at an event held yesterday (18).
“While broadening our tax bases was a primary objective, we are also looking to address the income inequality and social inequity issues,” Perera said, at the CA Sri Lanka Budget Symposium.
Prior to the budget, Sri Lanka announced that it was to raise its pay-as-you-earn (PAYE) tax threshold from a minimum of Rs. 100,000 to Rs. 200,000. “That’s why we had a few tax revisions announced prior to the budget to increase the taxpayer limit and broaden the tax base.”
However, Perera said that further relief measures such as value-added-tax exemptions were to not be levied as the government intends to mitigate inequality through targeted relief measures, such as cash transfers and subsidies.
“Reliefs are to be targeted, instead of giving VAT exemptions for stationeries, books and school items. Students in need are to benefit from the subsidiary stipend transferred to them. Likewise, rather than levying tax incentives for everyone, targeted transfers are the priority.”
Perera added that the government is committed to implementing the fiscal planning carried out by previous governments in the recent past.
“We had to commit to what was implemented in the past 2-3 years when preparing the budget, rather than carrying out changes. We had limited space within the budget, and had to stick to the limitations that exist in the medium term.”
Sri Lanka’s budget for 2025 garnered praise from analysts for aligning with the International Monetary Fund (IMF)’s $ 2.9 billion programme targets, including the 2.3% primary account surplus goal.
However, concerns remain about fiscal consolidation. According to Moody’s Ratings, the budgeted expenditure for 2025 could lead to a wider fiscal deficit and slower-than-expected fiscal consolidation.
“The budget underscores the challenge that Sri Lanka’s fiscal authorities will continue to face because of its still weak debt affordability, narrow revenue base, and underlying social constraints,” according to Moody’s Ratings Vice President and Senior Analyst Christian Fang, quoted from a Reuters article.