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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Tax reforms come to nought

Tax reforms come to nought

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1Tax reforms come to nought Empty Tax reforms come to nought Thu Jul 05, 2012 11:10 pm

CSE.SAS

CSE.SAS
Global Moderator
Despite widely acclaimed reforms to the tax system, tax revenue growth fell sharply during the first few months of this year as the government continues to tackle a balance of payments problem.

Comparing two sets of data ‘January to April’ and ‘January to May’ for 2011 and 2012, government revenue growth rates have fallen sharply while expenditure growth rates have risen, with the budget deficit widening by more than 60 percent.

A belated policy response to a balance of payments crisis has resulted in a tougher-than-necessary economic environment.

According to the Ministry of Finance and Planning, government revenue for the period January to May 2012 amounted to Rs. 386.6 billion, recording a 9.1 percent increase over the corresponding period of 2011. Tax revenue increased by 11.9 percent to Rs. 353.3 billion while non tax revenue reflected a decline of 13.4 percent to Rs. 33.3 billion.

This compares poorly with the 23.76 percent growth in tax revenue during January to May 2011, which reached Rs. 319.8 billion while non tax revenue declined 5.86 percent to Rs. 38.5 billion last year.

Comparing government revenue and expenditure growth rates between the periods January-April 2011 and January-April 2012 also show how challenging the fiscal environment has become since the end of a thirty year conflict in May 2009.

Total government revenue grew 17.63 percent year-on-year for the period January to April 2011. The growth rate for the same period this year was just 7.49 percent. Tax revenue last year grew at 22.45 percent, but this year, tax revenue growth had fallen to 10.7 percent.

Recurrent expenditure which grew 10.18 percent year-on-year during January to April 2011, accelerated to a growth rate of 23.6 percent during the same period this year and capital expenditure which grew at 17.18 percent last year, grew 46.6 percent this year.

The budget deficit which expanded 2.86 percent last year has widened 65.8 percent year-on-year during January to April 2012.

Revenue reached 4.1 percent of GDP during the first four months of this year, down from 4.4 percent a year earlier while recurrent expenditure reached 5.9 percent of GDP, up from 5.6 percent a year ago and public investment reached 2 percent of GDP from 1.6 percent, Treasury data showed.

The budget deficit during this period amounted to 3.8 percent of GDP, up from 2.7 percent year earlier.

"The first four months outcome reflects the impact of revenue lags and expenditure leads and higher revenue and moderation of expenditure is expected in the second half of the year. Hence, the fiscal operations in the year as a whole are expected to remain consistent with the targeted deficit of 6.2 percent of GDP. The measures taken to provide support for local industries such as the reduction of duty waiver on milk powder imports, increase of Special Commodity Levy (SCL) on sugar etc. in the wake of declining commodity prices in the international market that required local economy safeguard and commitment controls are conducive for fiscal consolidation," the Treasury said.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=56040

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