Sri Lanka’s finance minister, Ali Sabry, says the country has no choice but to boost the sales tax.
Sri Lanka: As the country faces its worst-ever economic crisis, Sri Lanka’s finance minister told the BBC that he has no choice but to raise the country’s sales tax. Ali Sabry admitted in an exclusive interview that the government made a mistake by practically halving the amount of value added tax (VAT) to 8% in 2019.
Mr Sabry estimates that the country will require $4 billion (£3.2 billion) in imports of daily necessities during the next eight months. His remarks come amid widespread opposition to the government’s economic policy.
Mr Sabry, who is leading talks with the IMF and other lenders such as India and China, one of the country’s main creditors, said that hiking taxes was only one of the painful decisions he would have to make as the rescue talks progressed. “Taxes will have to be raised. We must find a means to close the revenue and spending gap that we currently have “,he stated.
He went on to say that the present VAT rate is “absolutely not sustainable” for a country like Sri Lanka, which is heavily reliant on imports of basic necessities, and that it should be raised to 13 percent or 14 percent.
He also admitted that a tax cut in 2019 shortly after Gotabaya Rajapaksa was elected president was a mistake, and that the government had waited too long to seek assistance from the IMF.
Mr Sabry was also cautiously optimistic that the country would be able to resume paying its international creditors by next year, but he cautioned that it was still too early to predict “It’s extremely difficult for me to provide a timeline; I hope and pray that it will be as soon as possible, probably six months to a year from now. But I’m not sure.”
The government of Sri lanka announced earlier this month that it would temporarily default on $35.5 billion (£27.3 billion) in international debt due to the pandemic and the crisis in Ukraine, which rendered payments to overseas creditors “difficult.” As bailout talks in Washington began, it publicly requested emergency financial assistance from the IMF.
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