* There will be difficulties and challenges in this journey
* Government doing its best to alleviate burdens on the public
* Tax base has to be widened
* VAT rise necessary at this stage
In an interview with the Sunday Observer, State Minister of Finance Shehan Semasinghe said the country will have to rigourously follow the present economic course of action to emerge stronger in the years ahead.
There will be difficulties and challenges in this journey and the Government is doing its best to alleviate the burdens placed on the public. According to the State Minister, it is also vital to work with the multilateral lending agencies to guide the moribund economy on to the correct track.
Excerpts from the interview
Q: Today there is an exodus of professionals from the country. Don’t you think this contributes to the further collapse of the country’s economy?
A: This is not a new phenomenon. However, if everyone who can leave does so it will hurt the country’s economy. But we must understand that the country’s economy is now on a positive trajectory.
The ongoing crisis is a transient phase. Sri Lanka, like many other nations globally, faced an economic downturn.
However, in comparison to other countries, our recovery has been swift. Despite this progress, challenges persist and will not be resolved in the immediate future. The recovery process requires time. We have established the essential conditions for a conducive economic environment. Blaming each other will not resolve the crisis. This is a temporary situation, and in the future, we will reclaim lost opportunities and benefits.
Q: However, professionals say they are leaving due to the unbearable tax burden placed on them. Your comments?
A: In 2022, an increasing number of professionals chose to go abroad, reflecting a period of despair for the country. It is however crucial not to interpret this situation solely from a political perspective. Presently, there is optimism, and everyone can observe substantial progress. However, some individuals see this economic crisis as an opportunity to seize power. It is akin to fishing in troubled waters.
Q: But you must admit the people are facing many economic hardships and pressures at the moment?
A: Presently, the country is reaching a critical juncture. An objective and balanced perspective, devoid of extremism and political bias, is crucial to comprehend the actual situation.
We acknowledge the challenges faced by the people. We do not dismiss them. It is important to understand that a country in crisis cannot be revitalised overnight. To overcome these challenges, a well-structured program is essential. Short-term difficulties are inevitable, and we have implemented social welfare measures for the underprivileged segments of society to alleviate these inconveniences.
Q: Wasn’t there an anticipated substantial economic revival after obtaining extended credit facilities from the International Monetary Fund (IMF)? However, it seems that the expected impact has not materialised as anticipated. Your comment?
A: To navigate our way out of bankruptcy as a nation, seeking support from reputable global financial institutions like the IMF, is imperative. However, maintaining financial discipline is a prerequisite for success.
The collapse we experienced is a result of not upholding financial discipline, and we must acknowledge this reality. It is crucial to assess everything in the context of what happened in 2022.
Criticism alone will not solve our country’s plethora of problems. We have prioritised financial discipline and are operating accordingly, even in a complex and risky situation. When anticipating potential challenges in the future, sticking to old habits is not a wise decision. A period of difficulty lies ahead, but it is necessary to face it to secure a sustainable future.
Q: Have the current challenges emerged due to the Government’s misguided policies, as some parties claim?
A: The only solution to overcome the current situation in the country is not to bring another Government to power. Doing so will only lead to the country’s collapse again. No other country will be willing to offer monetary assistance, and changing the current system could result in unfortunate consequences for our nation. We should follow this path at least until 2027-2028.
Q: Is there no other option but to seek help from the IMF, World Bank et al?
A: It is crucial for us to seek support from the IMF and the World Bank at this time. We can draw inspiration from the examples of India and South Korea, whose economies collapsed in the early 1990s. With IMF assistance, both countries successfully revitalised their economies. Today, India boasts one of the world’s strongest economies, and South Korea has also achieved remarkable economic growth and strength. In fact, South Korea’s success story is hailed as the “Miracle on the Han River”. This underscores the positive outcomes that can result from seeking support from the IMF. Besides, many other countries including Greece, Argentina, Ghana, Pakistan, Bangladesh and Zambia have sought IMF assistance.
Q: What if the citizens impacted by these harsh economic measures have now become disillusioned with the Government?
A: We cannot afford to gamble with the lives of 22 million people. We need to rebuild the economy. Unfortunately, today we have to take some unpopular decisions. Even if there are short-term difficulties, people will realise in the future that these decisions taken today saved the economy. Criticism and blame are rather easy. No matter what steps any other Government takes, it must adhere to this course. Failure to do so will lead us into a more severe crisis.
Q: Will the significant increase in Value Added Tax (VAT) to 18 percent have a substantial impact on the economy and the people’s lives?
A: Our country experienced 70 percent inflation post-2022. The anticipated inflation with the VAT increase is only around 2 percent. Efforts will be made to control it through the necessary economic instruments. Additionally, it is essential to note that certain criticisms and interpretations are not accurate.
The VAT will see a modest increase from 15 percent to 18 percent, which amounts to a 3 percent rise. VAT has now been applied to 94 out of the 138 categories that were previously exempted. The adjustment from 15 percent to 18 percent is part of a comprehensive tax strategy, and any consideration for a reduction in the future will depend on the effective implementation and reception of the increased VAT.
The objective behind this is to augment Government revenue, which is essential for sustaining public services such as Aswesuma, fertiliser subsidies, disability allowances, hospital welfare, education, pensions, and infrastructure development. Acknowledging this reality is crucial for comprehending the reasons behind these fiscal measures.
Q: How long will these difficulties continue?
A: Concluding 2022 with an economic decline of -11, it experienced an improvement to -3 in 2023. The expectation is optimistic, aiming for a recovery to +2 by the year’s end. Positive prospects are anticipated for economic improvement in the coming months.
Q: Do you believe that positive outcomes can be achieved through this economic reform program?
A: Yes. Individuals with taxable income exceeding Rs.1.2 million should adhere to the country’s tax policies to ensure proper settlements. Encouraging tax compliance in this income bracket is crucial for sustaining essential services. The tax base has to be widened. Merely complaining about high taxes without fulfilling tax obligations undermines the overall economic stability, especially in times of economic pressure. Understanding and bearing with this reality is essential for the nation’s collective well-being.
Translated by Maneshka Borham
