Sri Lanka's tax hikes will help it regain creditor confidence -IMF

COLOMBO : Sri Lanka’s recent tax rises are in line with international comparisons and needed to help creditors regain confidence, the International Monetary Fund said on Thursday, backing the crisis-hit country’s effort to lock down a $2.9 billion bailout.

An IMF statement said the hikes, which included an up to 36 per cent rise in income taxes, were essential to tackle revenue collection that has been low by global standards.

External financing would not bridge the gap needed to fund essential expenditure, the statement added.

Efforts to increase tax revenues should be pursued in a growth-friendly manner while protecting the poor and most vulnerable,” the IMF said. “It is however also important that those who can most afford it make commensurate contributions to the financing of the necessary government expenditures.”

The South Asian island country is grappling with its worst economic crisis since gaining independence from Britain in 1948, beset by inflation above 50 per cent, a shortage of foreign exchange, a plummeting currency and a steep recession.

The government has also raised electricity tariffs by two thirds as it bids to put its public finances and debt in order and qualify for the $2.9 billion IMF bailout provisionally agreed in September.

Public sector unions have called for a fairer tax regime, and around 2,000 port workers, already staging a work-to-rule, on Wednesday held a demonstration in support of that demand during their lunch break in the commercial capital Colombo.


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