Ceylon Chamber of Commerce confident about consensus in Sri Lankan politics

Stabilising the economy

By Sanath Nanayakkare

A growth strategy is just not practical right now because Sri Lanka’s current external and domestic economic situation demands stability first, Duminda Hulangamuwa, Vice Chairman – Ceylon Chamber of Commerce and Senior Partner and Head of Tax at Ernst & Young said recently.He noted that all political parties have agreed with the Ceylon Chamber of Commerce about the need to stabilize the economy, without sabotaging it.

Hulangamuwa made these remarks during a discussion programme on Hiru TV which focused on the increase in corporate income tax rate and personal income taxes.When the argument was put forward by the panel at discussion that an environment should be created to grow businesses before raising taxes, he said,” if we try to shift to a growth path right now without stabilizing the economy, it will push us further down and not up.”

Further speaking he said:

“I think that the country should first contain its destabilizing systemic risks such as low-revenue, huge budget deficit and state-owned enterprise (SOE) reforms. At the same time, we need to target a primary budget surplus of 2.3% if we are to obtain an IMF loan. A surplus in the primary budget won’t be attainable without a new tax policy that aims at higher revenue collection. No-one likes to pay higher taxes including myself, but the reality on the ground demands that the government’s revenue base has to expand for the country to keep on providing free public education, healthcare services, defence and law enforcement services etc.”

“Firstly, we have to restructure our external debt and secondly increase our revenue to reach the desirable primary surplus target. If we do these two, the IMF will give us loans. We should keep in mind that the IMF hasn’t agreed to give us a loan yet. As we all know, our external debtors have to give assurances that they will agree to reschedule our loans. Then we have to increase our revenue. If we don’t do these two things, we will not receive IMF funds by December 2022. If we don’t get IMF funds, we can’t do any infrastructure projects or engage in any development activities to boost the economy. Such a scenario will make the situation even worse; therefore, stability has to come before growth. Increasing government revenue and taking other measures to reduce systemic risks such as SOE reforms, are akin to applying brakes to escape the abyss. We have to do these within the next two years. The country has to increase its revenue to meet its expenditure to a greater extent than now.”

“A political consensus is critical in this context. The Ceylon Chamber of Commerce discussed with all political parties in the past six months about this. During our discussions with them, they all agreed to a national programme to achieve these economic objectives without sabotaging it. Their positive reaction still remains in place and we don’t still see any opposition to it,” Hulangamuwa said.


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