The government had reduced VAT (VAT) to 8 percent from 15 percent and also abolished seven other taxes.
These large tax cuts led to a downgrade of the credit rating the following year, which led to Sri Lanka’s devaluation of international financial markets.
Sabry told parliament on Thursday that Sri Lanka would lose around 500,000 taxpayers each in 2020 and 2021 following ill-timed tax cuts.
“From about 1,550,000 taxpayers at the beginning of 2020, the number went down to 1,036,000 in 2020 and to 412,000 in 2021. This is a huge problem for us,” Sabry told Althingi on Thursday.
Sri Lanka’s foreign exchange reserves fell sharply from a healthy level of 8,864 million US dollars in June 2019 to 2,361 million US dollars in January 2022, according to official estimates.
The COVID-19 pandemic in March 2020 only exacerbated the situation, with a large influx of tourists and foreign cash flows.
Prolonged and intermittent pandemic closures prevented the economy from reaching what was originally expected from the tax cuts, Sabry was quoted as saying in the Daily Mirror.
“The tax cuts in 2019 were made for all taxpayers in the country to stimulate economic activity and thereby use the resuscitation as a pathway for the country’s development. Due to the pandemic, he was not able to deliver the desired results, “the minister explained.
In 2018, Sri Lanka’s tourism industry grew to $ 4.4 million in revenue, down to $ 200 million in 2021, mainly due to COVID-19, he said.
However, even before these tax cuts, Sri Lanka was the country with one of the lowest rates of GDP in the world and the tax cuts in 2019 put Sri Lanka closer to the bottom of this list, the report said.
As a result, it was estimated that government revenue from GDP in 2021 would have fallen to 8.7 percent from 9.1 percent by 2020, while tax revenue from GDP in 2021 would also have fallen to 7.7 percent, it said.
Sabry said on Wednesday that the 2019 tax cuts were a “historic mistake”.
In the future, the Minister of Finance is expected to present a new budget for this year, which includes a higher tax system, according to the Daily Mirror.
“We have bitten ourselves more than we can chew,” Sabry admitted to Congress on Wednesday.
Sabry, who has just returned from Washington following important talks with IMF officials, said Sri Lanka’s $ 7 billion foreign exchange reserves in 2019 had fallen to less than USD. 50 million now.
Sabry said it was a mistake to cut taxes when taxes should have been raised.
“I admit it was a mistake. Instead of giving a fishing rod, we are now experiencing the end result of giving fish. At present, there are not even $ 50 million in liquidity in the country,” he added.
Opposition groups called for the resignation of Prime Minister Mahinda Rajapaksa, the head of a powerful family for two decades, and his younger brother, President Rajapaksa.
To date, the Rajapaksa brothers have opposed demands for resignation, although three of the five Rajapaksa MPs resigned in mid-April.
Mail Bonus – #Sri #Lanka #lost #million #taxpayers #tax #cuts #Finance #Minister #Ali #Sabry