Issuing a public report on Budget 2022 ahead of third budget reading, Colombo-based think tank Verité Research said that Budget 2022 fails in establishing a stable fiscal regime.
“In January 2020, a new tax structure was established, introducing substantial reforms to major taxes including corporate and personal income tax, and VAT (Value-Added Tax). The stated objective of that change was to establish a stable and predictable regime of lower taxes for at least five years. The proposed budget undermines those aspirations. Through measures such as financial VAT and surcharge tax, it introduces tax increases (reversing reductions), one-off taxes (reducing stability), and retroactive taxes (reducing predictability),” it stated.
The year 2022 will be a pivotal year in Sri Lanka’s external debt management and the economy as a whole. Budget 2022, currently being debated in Parliament, provides an opportunity to map a path out of Sri Lanka’s prevailing economic troubles. On 10 December 2021, Members of Parliament will vote on that Budget. To do so with responsibility, they require a robust analysis of the assumptions and estimates that underpin the budget proposals.
Further, the release pointed out: “The one-off taxes proposed not only create a shock in the present, but also increase uncertainty in the future. Businesses and investors are left speculating about the new tax measures that might be taken in 2023 to address revenue needs met with the one-off taxes in 2022.”
“The Budget also fuels macroeconomic instability by setting a path of high deficits. Using the Government’s own budget and economic data, Verité has projected that the budget deficits will remain around 10% and above till 2025.”
Accordingly, Verité Research has compiled this public report on the Budget to meet the need in reporting the analysis on the estimates and assumptions used in the formulation of the Budget. It serves to assess whether Budget 2022 can achieve three critical outcomes: Establish stability, build credibility, and instil confidence.