World Economy

Sri Lanka Hikes VAT, Taxes

Sri Lanka Hikes  VAT, TaxesSri Lanka Hikes  VAT, Taxes

Sri Lanka will raise its value added tax and reintroduce capital gains tax to break out of a debt trap, Prime Minister Ranil Wickremesinghe said on Tuesday, ahead of talks on a $1.5-billion loan it is seeking from the International Monetary Fund, Reuters reported. Sri Lanka’s finances are under scrutiny after ratings agency Fitch last week downgraded its sovereign rating by a notch, to “B+”, spurred by a ballooning fiscal deficit, rising foreign debt and sluggish growth prospects. It also faces a balance-of-payments crisis after a third of its foreign exchange reserves was depleted within the 15 months to January by the central bank’s defense of the rupee currency, pressured by heavy debt piled up under the previous government. “This crisis can be overcome only by reducing the budget deficit and a medium-term joint financial program aiming at suitable reforms to reduce the debt burden,” Wickremesinghe told lawmakers. Taking action to boost revenues, he announced that VAT would be hiked to 15% from 11%, while capital gains will be taxed for the first time since 1987.