This year’s fiscal deficit is likely to reach 7% of gross domestic product (GDP) due to significant dip in revenue than expected mainly due to slow growth and increase in election-related spending, the Finance Ministry said in a statement.

“The expected fiscal deficit for 2019 will be more than the estimated and could settle around 7 percent of GDP, due to both a significant dip in revenue than expected mainly due to slow growth and increase in election-related spending.”

“Thus, the government will make a concerted effort to recalibrate its operations along a sustainable deficit reduction path towards 4% of GDP in the medium term, together with a rationalization of the debt stock to manageable levels,” the Finance Ministry said.

“Hence, many such measures are in the pipeline to ensure that strong fiscal discipline is maintained within the government machinery so that public resources are used effectively, ensuring fiscal responsibility,” it added.

On 27 November 2019, the government announced a series of measures to re-engineer Sri Lanka’s tax Policy framework with a view to creating a simple, transparent and efficient tax system that will promote self-compliance and easy tax administration.

The new tax reform initiative is a fulfillment of a pledge given in the election manifesto of the President Gotabaya Rajapaksa. The reforms constitute a much-needed transformation in the country’s tax system to address the numerous problems stemming from its extreme complexity with multiplicity of taxes that has resulted in many distortions, corruptions, irregularities and violation of some basic taxation principles, norms and affordability to the tax paying community.

“This reform initiative is undertaken in the background of many economic challenges as the Sri Lankan economy has recorded a less than 2 percent growth in GDP together with rising inflation outlook. Budget deficit too has exceeded the announced fiscal target. Moreover, the government has observed that, the low growth in credit and monetary aggregates along with underperforming economy, there is leeway to provide a substantial fiscal and credit stimulus to increase aggregate demand in the economy,” Finance Ministry said.

“Hence this is timely as it stimulates economic activities and ease the tax burden on the general public. This will also create a conducive environment for the private sector for their business planning and investment decisions thereby more economic activities will be generated in the short to medium term, boosting economic growth. The removal of Nation Building Tax (NBT) and the reduction of value Added Tax (VAT) to 8 percent will reduce prices of most goods and services which will also result in a moderation in inflation,” it added.