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O.c:.O-zo¡+ (¯, s ÷: º O.u:O_O our_O) .c¸ .ç_ o..:.:.. õ÷u ur: rcu _¸e¬.
3 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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.õ÷5 (._. uc.cu ÷..)
58
48 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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z¯ O.O cr.:. c_r_ ce:: ¸cec.:uc o.O ucc: õeç. ._.cu c...c 63
zs O.O ccõc c: -¸r .c e..c - ._. eu.Ou O.◊: O.O÷.ccu 64
zº O.O ._. eu.Ou c.:. O.◊: O.O÷.ccu : _.c∞c:Oc 65
+o O.O c:c ÷: ._. O.O÷.ccu : _.c∞c:Oc 66
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+z O.O _r. -u: e:_ u:.: ÷÷..eo ._. :::Oc 71
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+! O.O . _r. Oc.c o.r.˙ec ._. :::Oc 73
+¯ O.O ._ru .Ou ÷...e5 ._. :::Oc 74
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¡+ c,c÷O:u c:c ÷: ._. O.O÷.cu : _.c∞c:Oc 65
5 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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cO
ç.rc
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24
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¡e c,c÷O:u _r. õ_-_ ..¬_ec _.c∞c:Oc 70
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zo c,c÷O:u o.c5 eu._-u :_c ÷: :_ oe_õc 72
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zz c,c÷O:u .Ou .. ÷D_ucu 74
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+¡ c,c÷O:u e÷O. o.ec ÷c:c 94
+z c,c÷O:u õdrc.O 98
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+! c,c÷O:u .:cO, ._r :. o.:.c ¸ç..uec eOu÷ o5 101
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!¡ c,c÷O:u o¸e.˙r.u e¬._ccO ÷.ecr.O õu.c ouc.: eOu÷ o. 110
!z c,c÷O:u cç._r c...u cO.: (.ç.) 1 1 1
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ç,o<O
cO
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115
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7 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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eçeru c÷O c_e.u †uO
c.., .::u:.OO ur: r_
c:c. c. ur: rôe5 †u ÷O
÷: eçrr r._cr :_ e.c
c.c_e5u:OO ¸†˙c: r_
c:c.
¡+, ¡! ÷: ¡¯
O.u:
oO÷.u ocO¸c
:::Oc c_-j
O.c:.O ¸†˙c:
rô. (O.c.r
O.c:.O) ¯
cO:u. O÷cO oç._ O c:ec c.:.
._. rc.r.˙:Oc c_-j uO:.
e:.c:c¸ .::u:.OO ç¸u .¸u.O
÷¸_¸÷o. ÷: c:ec c.:. ._.
re..c.cO ÷.ecr.O rc.r.˙:Oc
c_-jO o¸.c.r ÷≥ rô.O
:¸rc.Or _-. ç. ÷j:. Ou, oO÷.u
ocO¸c :::Oc c_-j O.c:.O
(O.c.r O.c:.O)
.ç_ Oc.c oO÷.u o ..÷ c:r
¸r.O. c..O ecc .::u:.OO
ur: rc c. ur: rôe5 †u
÷O ÷: eçrr r._cr :_
e.c c.c_e5u:OO ¸†˙c: r_
c:c.
¡e,¡¯,¡s ÷: ¡º
O.u:
ccO .¸:Oc.
ocO¸c :::Oc
c_-j O.c:.O
¸†˙c: rô. ¯¯
ce. c.:. ._. :::Oc c_-j
uO:. e:.c:c¸ .::u:.OO ç¸u.
¸u.O ÷¸_¸÷o. ÷j:. Ou ccO
.¸:Oc. ocO¸c :::Oc c_-j
O.c:.O
c.c_e5u:OO .u:Oc¸u
e:.c. c: rc .¸u. ÷j:.
.: .¸:Oc.cr c¸O¸:o.O
uc. rôe5 cr..ecu ÷:
:ur o¸:_: ce. c.:. ._.
:::Oc c_-j e:.c:c¸
o¸:_: .¸:Oc. ccO :::Oc
c_-j O.c:.Or .::u:.O
eO: ¸†˙c: r_ c:c. uO
c.c_e5u:O d÷ rôe5 †u
÷O ÷: eçrr r._cr :_
e.c c.c_e5u:OO ¸†˙c: r_
c:c.
* fuu jdr®;dj uqo,a wud;Hjrhd úiska b†˙m;a l< hq;=h
** fuu jdr®;dj uqo,a wud;HdxYfha f,alïjrhd úiska b†˙m;a l< hq;=h
88 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ç:r¡r.Oc zcI+
çOc.: çcO,c rrrOc c¿-q O.or.O- .ç_ :. r.÷5c.çu o..:...ec zo¡z O.c.r O.c:.O, c. O÷ec
c.:. ._. :. o.c.r :::Oc c_-j rc¸. ¸†˙c: rccu zo¡+ .¸c .÷ oO÷u Ou õO .::u:.OO
ur: rc, ¸u ou:c¸O cc c.c_e5u:O eO: ¸†˙c: rcu _ç.
Oco o,ç o.o. o¡. rrrOc c¿-ç O.or.O zcI+ O÷c .¸ç c.:. . _. :: : Oc c _ -j rc¸. ¸†˙c: rccu
zo¡+ : u .÷ oO÷u Ou õO .::u:.O eO: ¸†˙c: rc ¸u c÷ c.c _ e5u : O eO: ¸†˙c: rcu _ç.
coo o.o. o¡. r¿o:.ro< O.or.O zcI! c ç:ro.rc
o.o. o¡. rco.c.c O.or.O - .ç_ :. r.÷5c.çu o..:...c ¸†˙c: rcu e.. O.c:.eo, ÷.÷:
c.:. ._. c:c::c rc.OO u¸oe5 O¸ç.: e_÷ ÷_ru _-u cΩ_ c.:. ._. rc...c.cu çrOcu
c:ec c..u re..c.cr c.-:.Ocu o¸:_:eo. õ÷c:u cu: erO5c: eçOuOc rcOu †uec e.c
c.c_e5u:OO ¸†˙c: r_ c:c.
çcO,c, ç.oOrc cc o.o. o¡. rrrO c¿-q O.or.O zcI! - .ç_ :. r.÷5c.çu o..:...c õ÷u
¸†˙c: rcu e.. O.c:.eo c:ec o.ç.c., õcç. ÷: c:ec .c .¸u5 cu.†ec o¸÷:e5u: o¸:_:
Ou o:c, c:ec c.:. ._. re..c.cO ÷.ecr.O c:ec ._. rc.r.˙:Oc o¸.c.O cçu5 Ou rc¸.
o¸:_:eo. õ÷c:u cu: erO5c: eçOu Oc rcOu †uec e.c c.c_e5u:OO ¸†˙c: r_ c:c.
9 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o.o. o¡. rco.c.c O.or.O zcI!
zcc+ ç.r + ço: o.o. o¡. r¿o:.ro< (O.ro) c:cr !, > cc t
O.:r cOcr .o, oç¡ ço.r.Ooc. õc: :rr ro: ¡ç.
zoo+ or + çcu c.:. ._. r_.u.rc. (O.r.) cue: !, ¯ ÷: e O.u: ouO õ÷c:u cu: erO5c:
c.c_e5u:eo ç eçOuOc rcOu †uec ç .ç_ o..:.Occ. õ÷u c:ec c.:. ._. re..c.c O.c:.O
.::u:.OO ÷: c.c_e5u:OO ¸†˙c: r_ c: Ou o:c c ouO e.. O.c:.O ¸†˙c: rcu _¸e¬.
ocO¸c ÷j:. cçu5 O cΩ_ re..c.cr c.-:.Ocu ÷: c.:. ._. re..c.c :. ÷.÷: c.:. ._. c:c::c
rc.:.r rôe5 ç O¸ç.: õc :¸r c¸c c:c ÷_ru _-u c..u c.:. ._. rc...c. e.. O.c:.O ..u
c¸:¸†_ rcu _-c.
11 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rEmigyk 1: whjeh ys`.h
%
0
2
4
6
8
10
12
9.9
8.0
6.9
6.4
5.8
2009 2010 2011 2012 2013
weia;fïka;=
. _r. o.c.rc c÷.c O÷c :ur r._c :_ ÷ccO
¯.¯ r ÷...u. eo.cru Oc.uc O o:c eç.c :.
õeç.c ocec.. ...ec OOç e.. Oc.uc o:rc
.¸u.O ÷..Oc ÷.cO o.c.r c:c::.c c˙÷ccr
c¸O:. ¸cr.ô õc. zo¡+ Oc.ecç o.c.r Oc.uc
...÷. ..O.r c¸O:c ç ¸ç..uc ÷ccO e r
c.. ..O.r cO:O. .¸u.O o-.¬O :¸ro. :_u
÷..c:.Oc ÷:: ¸:_ o.c.r Oc.ucr ecc¸r.
O¬.: .r:.: o o¸:.
c:ec c:c:: c..O Ou . _r.O o.÷c.eo u¸.
cu o..Dccc - .:uç cu:u ¸†˙ ¸r.`` :_
¸reOu .¸†r._u cΩ_ ÷Oc.u oc.. :. ÷...cO
c..u oecr.: ¸_rr _..rc .¸u. ÷j:. ÷:.c
o. c◊÷ ÷.÷: c.:. ._. re..c.c uc...c rc
o¸:. O.r5 ÷:: c.:. ._. r_.u.rc.cr ÷::O
ocO¸c :.c :. c:ec .c r..ur_O o¬rô. ÷j:.
Ou u:.c c..O o¬. zoo+ or + çc. c.:. ._.
r_.u.rc. (O.r5) cu: ..u c.:. ._. rOc:
÷j:. oO.. .. ecuo. _-. eçc.
.ucu c.:. o.ec.:u ç.eç.u ecu ÷ccO e r c..
cO:O. .¸u.O oecr.. erec. eç.c ÷: õeç.c
O.ecu cO:u †.r._u oc.ç_ _-. .uu. o:c
ecç._r o.ec: .c Oc.uc o.O o¸: oO÷..Ou
cΩ_ er.O ecç._r o.ec.:u O¸¬ rô. ...
r._u c.:. ._. c:c:: c..eO: :O: cr c..u
oc..r. ¸ç..uc :u ... o.cr cO:O. .ucu
c_ ÷..c:.Oc O¬.: .r:.: rô. ÷j:. .ç_
c:c::c :¸÷co.O .: -¸rOO O¬.: cΩ_ uç:÷r
_-.ç. ÷j:. oO.. O.:.Oc.c e.. ..Oe5 ocO¸c
:.cr ..u ÷r÷ rc eçu _-c. e5 e::eOu ec._
ouc.:rc o¬Ou o¸: o:c cc c:ec ocO¸c .:
e.u. ÷.÷: o.c.rcO. Ou c¬uc oO. rcu o:c
c..cr ocO¸c :.c .r:.: rc .¸u.O ::rc e_÷
-_c.u o¸:.
.¸†r._u ocO¸c ¸_rr _..rc .¸ue5ç c:ec uc
¸:c¸5O_O e::eOcu cO:u o.∞c5 ..e.: :.c
c:ec e÷O. ÷¸cc. ÷cr.: rccu ÷: ÷c÷..u
õcç5 o.cr.. rccu o.∞c5 o:˙r:cr -OO c:rc
.¸u.O oecr.. erec. cO¸u o:˙r:cr ..u
÷≥Ou c:ec ¸:c¸5 c.:. o.ec.:u O_u er.O÷r
._.uc rô. ÷j:. ec.∞.: :¸rOu o¸: o:c c
e::eOu .c .¸ue5 oO..:.Oc ç o¬Ou o¸:.
õõ. o.O_ c:÷÷rc. :∫uO.eçcu õe..ecu.
r_.cc O.ecu :c.r.ô -≥ O.:cr ÷: cΩ_ -≥
cçu.r ÷:: o.ec.:ucO ::¸: ÷c_ -≥ r.cr
:∫uO. eçcu ÷: -≥ c˙c._uc O¸¬†c. rô.
..u cc :O: .r:.: rccu c.:. ._. o.ec
÷≥rcu _ç c:÷÷rc. :_u e.. rc.O_cO oO..
÷:ec..c _-.eçcu :e¬.
-≥ c˙c._uc .r:.: o uO -≥ c:÷÷rc. :c:.
o.c.r rOc: Oc.uc Ou eo.cO ÷..uO -≥
o.∞c. ç O¸¬Ou u.. -≥ r.cr ÷..c: Ou õO
Oc:..uecç ç.eç.u ecu ÷ccO ¡+ r c.. ..Oe5
cO:u o.∞c. ¸:_ cu o¸:¸c oecr.:c. õeç.c
o.ec ÷..c:.Oc ÷cr.: rô. ÷j:. .,:rç :∫uO.
eçu _ç .ç_ :. c.:. ._. c:÷÷rc.O_O c÷O
-≥ cçu. r.ecu c.. :::OcO c:o.: ÷..
.¸†r._uO o.∞c. ç.eç.u. ecu ÷ccO ¡¯ - ¡e c..
çrO. O¸¬Ou o¸:¸c oecr.:c. o.∞c. :O≥cO:
O¸¬rc .¸u. ocO¸c O¬.: e:.ju rc.:.r rô.
c:÷ rô.O c..¬...c e.e:c5 rOc: ÷j:.
c...O: ¸O._:.Ocr _-.ç. erec: ç O¸ç.: eo.

e÷O. o.c erec: O¬.: u¸.c¸Or o¸: o.c.rcr
-OO . _r. o.c.rec: O.:.:.r O.ecu ÷≥o o¸:
c˙Oc:uc :_ e÷O. o.ecu -≥ ocrôe5ç cO:u
o,†r.¡: o.o. o¡. rco.c.c
c:ec ...r._u c.:. ._. re..c.ec: oc..
Ouec ocO¸c :.c ÷: .c o¬ rô. :_u ... :.
†.r._u o.c.r Oc.u rc.O_c ÷ç:. ¸cr.ô o.c.
ç.eç.u. c:.:cr e_÷O zooº Oc.ec ç ÷ccO º.º r
O ocO¸c :.c zo¡z Oc.ec ç ÷ccO e.! çrO.: zo¡+
Oc.ec ç ÷oOu O÷cO: ÷ccO ¯.s c.. çrO. o¬
rc .ucu .,: r._uO _-..: c.:. ._. o.ec
O¸¬ †c.o. :O ≥cO: .r:.: rô. e.. re..c.c
..u oO..c.c rcc. zo¡! - zo¡e .¸† r._u c.:.
._. O¸¬÷O:u :_ ocO¸c :.c ç.eç.u. : c:.:cr
O.ecu ÷ccO ¯ rO O¬. o¬ ..O.rO e.u c.O
-_.ec.ec.:: eo. e.. re..c.c ..u o.∞ce5
O¸¬o.r e.u. Oc:u õcç. ...÷. ..O.r cO:O.
12 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ocec..O_O .:.ç. ÷j:. c-_ ¸:÷.:cr çcu
o¸:. uO o.c.rec: u¸. cu o. ÷j:. c:÷r5
÷¸cc. e.u. ocucu e.u. eç.c u.c.çuc
†˙.¸uo. O¸u oeur: ocec.. ÷j:. ç ÷≥÷
rc...c. :∫uO. eçu o¸:.
õe..ecu. ÷.ecr. O.ecu o¬ o.cr.r õcç.
÷: oO:¸u OOu ÷j:. O õcç. o¬o. :_u
Oc:u õcçe.: o¸:o o¸: o¬o. o-.¬O ÷≥Ou
o¸:¸c oecr.:c. „Oeu.c.c oO÷.. O¸¬†c.o.
e.u. e÷O. ucr:c, †_∫r. :. ¸ç..uc o¬Ou
O.:.Oc.cr :_ ÷-÷..u õcç5 ¸ôe5ç o∞_
O¸¬÷O:uO_ ...:.r c.Oc O¸¬†c. rô.O
oO÷..O _¸- o¸:. c.:. O..c.cO_ ._. ÷..Occ.Oc
O¸¬†c. rô. ÷j:. c˙O¸c c_-. Ou c˙† c_
.¸_c5 ÷≥rô. o-.¬O ÷≥rcu o¸: o:c cc o.∞c5
..e.: :.c r..ur_O o¬rc .¸u.O ¸cr.ô Ou
o¸:.
zooº Oc.ec ç ç.eç.u. ecu ÷ccO +.¯ r O o.∞c5
..e5 :.c zo¡+ Oc.c Ou õO ÷ccO o.¯ r çrO.
o¬rc .: :¸r O o:c ...r._uO cc :O≥cO:
.r:.: ..O.rO o¬rc .¸u.O oecr.:c. o.∞c5
..e.: o-.¬ O¸¬†c.o. c.:. o.ec.:u ç.eç.u.
ecu ÷ccO e r c.. ..O.r ÷cr.: rc .ucu
c:ec .c _-. .¸ue5 oO..:.Oc o¬rc .¸u.O
e::Ou o¸:.
e.. .¸†r._u c.:. ._. O¸¬÷O:u :_ ocO¸c
:.c r..ur_O o¬rc .¸u.O ÷: oecr.: ÷ccO
¯ - s r c.. ¸:_ o.c.r Oc.uc e::eOu .c
ouc.:c r..ur_O o¬rc .¸u. ÷j:. c:ec .c
r_.u.rc. ¸c.c..c.c ÷r÷ rc o¸:. Oc. zo¡e
Ou õO ç.eç.u. ec: c:.:cr O.ecu c:ec .c
c...c ÷ccO e¯ çrO. o¬rc .¸u.O ¸_rr rc
o¸:.
oecr.: ¸_rr _..rc .¸ue5 rc.O_c
oõu.c::. O_u :. oO∞u5 ÷:.: -õu e:.cOOr
eu.eo. c.:. ._. r_.u.rc.c e-.e:. õO eç.c
:. :.:.u:c O.ecu ÷rc. o.c.r c˙÷ccr
...ec ÷≥rô.O ÷≥o :-. cO e::Oc. eç.c
O.ecu .:õO ouecr.: r._.◊r õccc.÷cu
ocO¸c rOc: erec: o¸:rcu o::rc -_c,.
.,:rç ¸:_ e..÷ o¸:. :.:.u:cO ÷_r. -¸g
õO c.:. ._. r_.u.rc.c õe..ecu. ÷rc.
r.cccr -OO c:o :e¬. †c. o.c.rcu ÷::
cOO_O ÷c c.:. ._. rOc: c.. :::OcO
e.uc.O .:: c˙..cr ¸ô.O ÷≥o :-. e.u.
õõ. cOO_O .:. ç.O ÷≥o o¸: .¸OΩ õõ..r.co.
÷: uO .¸OΩ :. ocec..cu o-.¬O .:eOcu
cO:u O.:.Oc.cr :_ cO.O õ÷∫5 e÷oe5ç
uO uc...._ õ÷∫5 ¸†˙c: rôe5 oO..:.Ocr
c¸u u¸. :-. ç cO e::Oc. :.:.u:c o.c.rc
:_ o.c.r Oc.uc .uç..c o., cec. r_.cc
:_ cO:u ÷eeOô:O .c oc-çc, cr÷: :ucç
o.c.rec: c.. :::OcO c:o. ÷.ecr. O.ecu
.uç..cO ÷≥o., cr÷: :ucçc õ÷u c....:.r
_:_rc. rc...c. r..ur_O ¸O: rcu _-u
o¸: r._c :. ¸u o¸:õc :¸r -_c,., ÷Oc.:
cOO_ õ÷u :. c.:. ._. c:c:: cΩ_ e_÷
¸¬rô. ÷j:. :∫uO. eçu ¸¬ c:÷÷rc.
rc...c. O_u o¸:õc :¸r -_c,., :.:.u:c
-u:e:_ c_ ..u o-.¬O ¸:_ ..O.r
c¸O:., .¸çecc†. r_.cec cO:u eç.c._ur
o÷..Occ.Ocu O¸u oõu.c::.Ocu ÷: oO∞u5
÷:.: :::Ocu o-.¬O c¸O:. . _r. o.c.rcO
o::rc e_÷ -_c.u o:c cc oecr.: ¸_rr
_..rc .¸u. ÷j:. oO.. .¸_c5 u÷o.r.cO
cO:O.e.u c.. erec: ocec..cr Ou o¸:.
.¸† :. †.r._uO o.c.r :. ._. ÷..c:.Oc ::Oc¸
rccu ¸:_ o.ec.:u ouc.:cr ÷: ¸:_ o.c.r
Oc.ucr :c÷.c e_÷ cO:O.e.u c.. ÷j:. cOu
oõu.c::.Ocu ÷: oO∞u5 ÷:.: -OO ÷.c.rO
.:.ç.O c:c:: re..c.ccu uc:c¸O .r:.:
rôe5 oO..:.Oc cu ecuO. eçu _-c. ...
r._u ÷.cO c.:. ._. c..O O.O or ¡ ..u çrO.
o¸:.
...r._u c.:. ._. cr..:.Oc .r:.: rôe5
O¸¬c_eO_ :_ o.∞c. O¸¬ rc.¸u. c..u:.
÷..rcr eo. zo¡¡ ocO¸c :_u :≥uO. ≥u uO
-≥ O.:cO c:D.c çrOcu c.:ec -≥ o.∞c.
ç.eç.u. c:.:cr e_÷ ÷ccO ¡e çrO. O ÷¸_rc
c: ¸:_ ..O.rO e.u c.O oecr.. rcu o:c
...r._uO e.. :::Oc :O ≥cO: .r:.: rc
.¸u.O oecr.. erec. c..u -≥ o.∞c5 ccO
e_÷O o.∞c5 -çç, cr: r_ o.c .: -çç, :.:c
e..¬u¸.e5 -çç, u.c.çu -çç ÷: oeur: eO_ç
c..¬ cçu5 rc.: -≥ Oc. :≥uO. †c :¸r.
o.∞ce.: c:: O¸eOcu :-. cO.:.Oc c..
:::OcO c:o u¸O: o.∞c. O¸¬oe5 cO.:.Oc
o.c5c o o¸: o:c c. :::Oc eç.c o.c.r rOc:
O¸¬†c. o.: e..Oc O.:u ÷j:. Ou ÷.ecr.
13 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
¡ O.O > o.. r.¡: c.oO o.o. o¡. o.oO (ç.cç.:. crcrcr c¡c)
cco.rO:
çcroc
2012 2013 2014 2015 2016
ç.∞co 13.9 13.6 14.5 15.3 16.5
-≥ o.∞c. 12.0 12.1 12.8 13.4 14.1
o.∞c5 -≥ 2.3 2.8 2.9 3.0 3.2
cr: r_ o.c .: -≥ 3.0 2.9 3.1 3.0 3.1
u.c.çu -≥ 3.0 2.8 2.7 2.6 2.7
:.:.u:c eO_∞. .: -≥ 2.9 2.7 3.1 3.2 3.2
oeur: 0.9 1.0 1.2 1.5 1.9
-≥ eu.Ou o.∞c. 1.9 1.5 1.6 1.9 2.3
c∞: 0.2 0.2 0.2 0.2 0.2
õcço 20.5 19.7 19.6 19.9 20.4
Oc:u õcç. 14.9 14.1 13.5 13.7 14.2
O¸Oc :. eo:u 4.6 4.5 4.1 4.1 4.1
ec._ e.o5 5.4 5.1 4.4 4.4 4.2
÷:u...c :. c¸Oc¸5 3.1 2.8 2.9 2.8 2.8
oeur: c..¬ :. e÷O. 1.8 1.6 2.0 2.4 3.0
c.:. o.ec.:u 5.9 5.8 6.3 6.3 6.3
¸u.:...c. 1.8 1.5 1.5 1.7 1.6
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õ≥_-_c :. -_.r: 0.4 0.3 0.2 0.2 0.2
:_ :. ÷uc.cr..O
0.4 0.4 0.3 0.4 0.4
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..cc o.c 1.3 1.2 1.1 1.1 1.0
ç.∞cO c.c ()çr˙rrc()(ç.cç.:. .) -1.0 -0.5 1.0 1.6 2.3
çcO,c c.c ()çr˙rrc()(ç.cç.:. .) -6.4 -5.8 -5.0 -4.4 -3.8
oocc <c (ç.cç.:. .) 79.1 78.0 74.3 70.6 65.0
._..· c.:. ._. c:c:: eçc.c:e5u:O ÷: :.:r ocO¸c eçc.c:e5u:O
O.ecu ¸:_ -≥ ouc.:O_O o.c.rc r..ur_O
ou.: oe.u c÷O o.ucu O¸¬oe.u o.ucu .:
_-u -≥ o.∞c. ç O¸¬oe.u e.c :O: .r:.: Ou
o¸:¸c -_.ec.ec.:: eo. -≥ c˙c._uec O¸¬†c.o.
÷: o.∞c5 c˙c._u ÷: r_.u.rc. e:.c:c¸ cç.:c
(RAMÌS) ÷5-u. c:÷÷rc. :_u ÷Ocrc e_÷
-≥ cr.. rô. ÷: -≥ c˙c._uec: r.ccr..:.Oc
O¸¬o. -≥ c:c:: c:÷÷rc.ecu oecr.: ¸_rr
_.. rc .¸u.O oO.. c:÷r5 ÷ccu o¸:. -≥ cçu.
.r:.:O Oc.uc oe5 :. ÷Oc e_÷ -≥ cr.. rô.
O¸¬ †c. oe5 cr.-ç. c:c_cr e_÷ o.c.r rOc:
Oc.uc Ou eo.cO ÷..uO -≥ o.∞c. ç O¸¬o. ...
r._uO O¸¬ †c.Ou o¸:¸c oecr.. erec.
crc.cro< rc.o.o.
¸¬ :c.r.ô e.._c o.c.r c˙÷ccr :_ eo.ecu
÷Oc.uc Ou .¸†o.∞c5 cOr O.ecu . _r.O
:_ r.ccr..:.Oc ÷: c_∞c:.Oc ¸:_ u¸o.O,
uO :¸rc.Ou c_-j .eo..c rô.O ÷: ¸:_
o.c.r Oc.uc :c÷.cO cO:O. .¸u.O c:c::
c:÷÷rc. :∫uO.ç. :_u o-.¬O eOu÷r5
÷≥rô. o:.O.. o o¸:. õe..ecu. ÷..c:.Oc
÷.. ÷Oc.uc _..rc .¸u. ÷j:. õDr.. c.:.
._. c:c:: rc.∞.cr cO:O. .¸u.O c:ec
ocO¸c rOc: O¸¬†c. rô. ÷j:. c.:. ._. o.ec
c:÷÷rc. ÷≥rô. o:.O.. eo. ...r._u c.:.
14 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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-≥..cr Oo.c crcrc ç∞¿ õ.õ..:
:.:c e..¬u¸.e5 -çç 33.33% zo¡¡ or ¡¡ çcu :.:c e..¬u¸.e5 -≥ (÷e...u) cu: ..u
÷e...: zooº or º çcu :..e...-. cue: ¡o Ou O.u:c
e..Oc c. _c.c†c rôe5
..÷:
70% ¡º¯¡ or ¡! çcu e..Oc c. O.:u cu: ÷: cO o∞_ ÷e...u
.ççc -çç 100% zo¡¡ or ¡+ çcu c_.: ÷c. (.ççc -≥ c¸Oô.) cu:
._..c· c.:. ._. c:c:: eçc.c:e5u:O
._. ¸_rr _.. rc .¸u. ÷ç:. c÷.c O÷c r:cc
:_ ç c:c õ÷u O.O÷..c:, c˙c._u.c, o.c:ur,
÷..: ÷Oc.u ÷: .r.:. Oc.uc eru¸ er.O.:
rc...c. c..cr :∫uO. eçu _†. e.r rc...c.cu
-≥rc.c, -≥ c˙c._uc, c.:. õcç5 r_.u.rc.c,
c.:. O..c.c ÷: o.c:u.c e.u. :¸rc. Oc.uc
cu re.:O_ c:÷÷rc.cu o.Oc.c rcu _ç.
-≥ crc.cro<
c:÷÷rc. :∫uO.ç. :. cO. u¸O: eOu÷ rô.
u÷. oõu.c: :::Ocu o¸:o.O ..c.çcu
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o¸: oO..:.Oc c:c õ÷u c¸:¸†_O :∫u.e.u o¸:.
e.. :::Oc -≥ c_-ç O :u..c: er.c÷. ..u
ç ecuO. eçu _ç. zo¡¡ ocO¸c ..u :≥uO. ç zo¡z
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c:÷÷rc. :c:. o¸: rcu _ç ÷c_ ÷: cΩ_ -≥
c.u:.c :_u c.:. o.∞ce.: .r:.: Oc.ucr
o¸: rcu o:c. ecç._r o.ec o.ec.:u ÷j:.
::rc c˙÷ccr uc...c rô. oecr.. erec. c
cOe: ÷≥ rcu _ç c..u -≥ c:÷÷rc. rc...c.
c:: ֍:u eo.

r_.cec oeur: cOO_ cO:u :::Ocu :.
÷..u Ou c˙† cç._ o.∞c5 -≥ r.c ÷c_ rô.
(Oc:..u o.∞c5 -≥ O.:c õe.. ÷O:u ¡ ..u
çrO. o¸:).
- o.u:r -≥ o¬ rô. · cç._ o.∞c5 -≥ ÷ç:.
O ¸c˙. o.u:r o.c -≥ cc.÷ r:ccr ÷..
u ¸:_. o.c ÷ccO z! çrO. o¬ r_ o:c -≥
uç:÷ ÷..O ¸:_ ¸c. :_ o¬ o.∞c5 _-u
cç._cu o∞_ -çeçu uç:÷ rcu _ç. :Oç
u¸. cu o. ÷ç:. :u ÷÷..c: o.∞c5 -≥ ou
c...cr e_÷O ÷ccO ¡z r :≥uO. eçu _ç
o:c oeur: O..c.c ÷ç:. ç ÷ccO zs r :u
-≥ ou c...cr :≥uO. ≥u o:c ccO r.c o5,
ccec.. ÷: ÷Oc.uc ÷ç:. O õcç5O_O o∞_O
eOurô5 ç o¸:_: rcu _ç.
- -çeçu uç:÷ o.∞c5 c...c O¸¬rô..
- ¸ccu õO e.o5 -çç oO÷.u -çç e_÷
÷¸_r.O rOc: rô..
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o¸:_: Ou c˙† cΩ_ rô..
÷÷..c: o.∞c5 -≥ c:÷÷rc.O_O ¸:_
eç.cO o.c cr: rô.r ÷:: u.c.çu
ocucuc rcu o.c:u ÷ç:. Ou -≥ ..O.
c:_ ¸c., o.ec.:u oc.ç_ ... (ÌFA) o.c5c
rô. ÷: õe..ecu. ÷Ω :. ... c˙...
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._. e÷O. o¸:ΩO ÷ccO ¡z r :u o.cr rc.
cr: r_ o.c .: O -≥ ouc.:c e.u c.,
÷rc. ÷: c¬.r.ô o.c÷ e.o5 r. ÷: :_o
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.: -≥ r.c ÷e...uc rô., ocucurc¸Ou
.:. eçu ._. cO.: ÷: o.c÷ e.oe5 .¸OΩ
÷ç:. c_c5 e_÷ cΩ_ rcu _ç o::OO
÷¸cc5 r.c ÷:: ÷c_ rcu _ç cr: r_
o.c .: -≥ r.c :≥uO. ç. cu.†c cr:
r_ o.c .: -≥ r.c :_ .uu. _ç c..u
rc...c. eo.
:Oe_ ÷≥ rcu e:.. e:. ÷__c O..c.ccr
e:. :u cç._ecre. ÷¸cc5O_ r.c:Or
c˙O¸O. (uç:÷ r_ c˙O¸O. ÷: ÷¸cc5
o¸:_:O) ÷ç:. oc rcu cr: r_ o.c .:
-çç cuOu ÷..O c¸.c_cu ¯oo O O¬. o¬
eu.õc c: e_÷O cΩ_ rô..
:.:c e..¬u¸.e5 -≥ O.:c ÷c_ rcu O÷
-≥ ouc.:c o¬ r_ o:c c_.: c˙O¸O5 -çç
oe:.÷ rccu e:.. :. ÷__c eO_∞. .:
:.:c e..¬u¸.e5 -çç cuOu _ç. :Oç, c_.:
c˙O¸O5 -çç oe:.÷ rô. e::eOu c_.:
÷c.O_O o:cOu o.∞c. eOueOu .... c:c
õ÷u cr: rcu _-u :.:c e..¬u¸.e5 -≥
o.∞ce.u ¡+ r c_.: ÷c. eO: _-. çe5
o.∞c5 e-∞ .¸ue5 r.eoçcr :≥uO. ç..
15 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
õcco cOc: I
ç.∞cO -≥ O.cc
õcroc -≥ ç:c.rc (.)
cç.¡ ç.∞cO -≥
c¸. ¯oo,ooo çrO. uç:÷
¸:˙c .:
c_. c¸. ¯oo,ooo (-≥ ocr_ :¸r o.∞ccu) 4.0
eçOu c¸. ¯oo,ooo 8.0
:uOu c¸. ¯oo,ooo 12.0
÷oOu c¸. ¯oo,ooo 16.0
c÷Ou c¸. ¡,ooo,ooo 20.0
¸:˙c 24.0
e÷O. ucr: o.∞c. c¸. eoo,ooo O O¬. o¬ u5 ¸ccu õO e.o5 -≥ o∞_ eu.eo
.Ouc.u. uc.Ou ÷: c5u cOO O·::c.c e÷O. ÷ccu _-u ÷...5O_ e÷Oc rcu _-u O·::c.c
e÷Orcu ÷ç:. o∞_Ou ¸c˙. ¸ccu õO e.oe5 -≥ ouc.:c ÷ccO ¡e r.
cr e÷O. ec.:recrO O¸¬ e÷O. ec.:rcu cOe: e÷Oec uc: e÷Orcue. e÷O. ucr: o.∞c5
.÷rO c¸. z¯,ooo O o¬ Ou õO oc rcu _-u -çç ÷ccO ¡o r. c. e.o. .÷rO c¸. z¯,ooo O O¸¬ u5
o∞_ -≥ ouc.:c ÷ccO ¡e r.
c.cO.cr ç.∞cO -≥
r·. rc..u:c
10.0
÷ccO e¯ r o.c cr: rô.r ÷:: ocucu
1u,. c..¬cr u.c.çuc rô.r e:. c˙O¸O. c¸cc_ c_cu ¯oo
¸r.Ocu ÷ccu _-u 1u,. e÷O.Or
.-¬. c:÷r5 cO:O.e.u c..
.·≥r.. ÷Oc.uc
r5rc¸Ou ÷¸cc.
o...cur e÷O.
÷..:.._. ÷: ÷.5
ec.. ÷ç:. Ou -≥
1u,. crr c.c e:. oeu..u. oc.ç_
rr_ c._uc
_.c.. o.∞c5
r¬. rc..u: (-≥ ocr_ :¸r o.∞c. c¸. c_cu ¯ eu.¸r.Ou)
12.0
÷5c∞cr eu.Ou ocucu¯
÷:O u.c.çu
c. ÷5c:
÷::O o.:.c u.c.çuc
÷D.cr rc..u:c
¸†r˙5
e÷-. e÷O. ÷¸cc.
o:cu: o..: ec†c_ u.c.çuc
oO∞u5 c...u O..c.c (Venture Capital Companies)
-u: e:_ .eo..
u.c.çu O..c.c 28.0
16 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
.:c¸u ≥5er._ :. :.O O..c.c 40.0
çc:rr
:O_ O..c.c e-†c :¸r _.c 8.0
e÷O. ucr:rcue. c.c oc.ç_, oc.÷..r e:. õ... O¸Oc oc.ç_ 10.0
c...c:u
c.:. eu.Ou ÷õ..u 28.0
* ¯ e:.. O.ecu Ou rΩ e: (cr c¸r¸.OOr re_. .,.rcO O¬. -c) ce:: e:.. O.ecu Ou ecu¸c e: :¸c,
÷r¸c c-c, .. c-c, c-c r˙ e:. ec._ :¸c ÷_ru _-u ocucu o¸:_:O Ou ocucu
÷Ω :. ... c˙..u O..c.c u.. ÷Oo. ÷: r¬. -≥
e.Ouuu eOueOu cO:O.e.u cu _-u õ.._
_ce..u ÷-..O o¬ rô. :_u eç.c o.∞c5
eçc.c:e5u:eo c˙c._u rOc: c:÷ rô. :.
c: c_∞c:.O ¸:_ ¸ce5 oc.◊u cr: r_ o.c
.: -≥ ÷: :.:c e..¬u¸.e5 -ççO cO: O.c.r
c˙O¸Oe5 ÷..O c¸. c_cu ¡z çrO. ¸:_ ¸c..
õ≥_ ÷eç. e÷O. .: O -≥ r.ec ÷rc.:Oc o¬
rô. ÷ç:. c .: O cr: r_ o.c .: -çç, :.:c
e..¬u¸.e5 -çç, c.eç.c c5:_ c:÷r5 ÷Oc.u
-çç, c˙÷c o.cr.. -çç ÷: :.. ≥cr.u ..:r
-çç eOuOO cr ÷cr: -ççr e_÷ õ≥_ ÷eç.
-çç :≥uO. ç. ÷: c.eç.c ÷Oc.u -çç, ÷..:
O.r5 -çç ÷: :c -çç oe:.÷ rô. :_u -≥
r.ec ÷rc.c.Oc o¬ rô..
-≥ õc.. ÷: -≥ ÷:u :.crrc.c ÷ç:. o.ec.:u
†˙ .¸uo5, re..c.c ÷Oc.u O..c·: u:c ÷:
o.∞c5 -≥ u:c cO:O .¸u..
o.ucucu :. ÷5-u. -≥ ÷ç:. c:: ÷ç:u
c:÷÷rc. ÷: eOu÷ rô5 :≥uO. ç..
- e..Oc c. O.:u o¸:ΩO e-.e:. c..¬
o.ucuc oee.cc.: erecu c˙† c¸O: -≥
÷c_ rô..
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- eç.c o.c cr: r_ u.c.çu †˙.¸uo.O
:¸rOu c˙† o.¸O. o.ucu .: :c¸ -≥ ÷:
e÷÷ -≥ ¸O: rô.
- u.c.çu rOc: c.u:rc.c rô. †˙ .¸uo.
÷ç:. cue:.crc. .: O o.ucu -≥ :O ≥cO:
o¬ rô.
- -≥ ouc.: ::cru ÷.uõ: :c¸-≥ r.c
cO:O.e.u c...
÷...c. :c.r.ô:Ocr o¸:rô. ÷j:. . _r.OO
÷.ecr. O.÷cr ÷:: u.c.çu .: e÷÷ -≥
:∫uO.ç. e:. cO:u e÷÷ -≥ ouc.: ¸:_ u¸o..
e:.c..: o:.O.. eO_j c..¬ ÷j:. ocrcu
_-u Or -≥ ÷c__ eOuOO :u ÷cr: -ççr
e_÷ ocrcu õe.. eO_j c..¬ -çç cO:O.e.u
c.. ÷: o.¸O. e_÷ rcu _-u ocucu ÷j:. -≥
¸:_ u¸o..
-≥ Oc. r:ccr .: cçu5O :- :.O :. ÷≥
O..c.cc eç.c o.∞c5 eçc.c:e5u:O ÷.. Ou
our_:.O ::Oc¸ rcu O÷ ..÷r cçu. .:
ç_ c˙O¸Oe.u ÷ccO ¯ r :u -ççr cuOu _ç.
:Oç, :.O :. ÷≥ O..c.c .: ocrcu _-u O.c.r
..÷:O c¸. c_cu ¯o ÷O c¸. c_cu ¡oo çrO. ¸:_
uOu _ç.
e:.c..: O..c.˙r o. cu5 c˙..r :.r.. :.
O..c.c rc.O_ -¸:¸˙u _-. .¸u. (BPO), õ≥_
÷eç., o.ucu o.eç.u rc.r.cr5 ÷: c...u
eO_çec._ .ueçu †˙.¸uõ. ÷ç:. ¸_rr.: -≥
†˙.¸uo5 :≥uO. ç.
.ç_ cue: uc.cu - oreOc_ O..c.c ÷ç:. zo¡+
or o¡ çcu O.◊: eru¸÷..u rc.r.cr5 cu:
cOe: zo¡+ :_ .÷ ¡¡ Ou †u or ¡s¡s+o çcu o:
õe.. .¸÷. c:c ..u õe..ecu :≥u..: uç:÷
Oc.cu ÷: -u.: .ç5 cr..cO c: rô. (õe..
÷O:u z).
.:c¸u ÷: ≥5c.uc oee.c..: rô. ÷ç:. -≥
¸:_ ¸c. :. u: õec.. .:c¸u, .: r¬ :. .:
¸O. O¸_¸ro. ÷ç:. ¸¬ rc...c. .¸u..
zo¡¡ Oc.ec :≥uO. eçu _ç -≥ c:÷÷rc.
.r:.: rô.O rOc: rccu -≥ c:c::ec
õ÷O÷uc:Oc ::Oc¸ rô. ÷ç:. oO..
÷e...u o-.¬O rc.:.r rcu o¸:.
17 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rc.r.oro
çOo cO.Oo c...:
ç.cc.o:c (ç,.c...
ò¡c:)
cr çc:c:
c˙O,Oo (ç,.c...
ò¡c:)
o. o.ucuc, ÷Ω c˙÷¸r÷5 ÷: c: ocucuc rô. :.
÷5-u. ou:c._ eO_∞.
5.0 20.0
o.. cr cOru ÷cc..u _¸-c :¸r e:. cr cOr ç u.c.çuc
rcu _-u c..¬, . _r.OO e.u cu _¸-e.u e:.cO
eOu: cOrO u¸o.: r_ :¸r or eOc_ O..c.c
1.0 10.0
o¸. õeç.c e÷O.∞crcu :O ecc uc e÷O.Ou ÷¸cc. 1.0 10.0
o,. ._. ÷¸cc5∞.c r_.u.rc.c rô. ÷: -_.: rô.
e.e:co. ..u c..u ece_ .¸.5rc¸Oue. ._÷..u
e.e:c5.: rô.
1.0 10.0
¸. . _r.O :_ -u.: .ç5 e:. õõ. cOO_ ÷.·:: rô5
O¸u ÷¸cc5 e÷O. ÷≥ rô.
3.0 15.0
õcco cOc: z
O.◊o cr:çcO.: õ.õ..:
zo¡+ ocO¸c ..u cr..cO c: r_ c˙†, oreOc_ O..c.c rOc: ÷ç:. .ç_ cu: cOe: zo¡+ or
o¡ çcu O.◊: eru¸÷..u rc.:.r rôe5 cu: ..u uç:÷ Oc.c ÷: -u.: .ç5 e_÷ :≥u..:
ceç.cu cr..cO c: rcu _†. c ouO, er._. ÷: :5-ue:.O Oc.cu uç:÷ Oc.cu e_÷: rOu.cr
÷: er..._ ocucu ÷¸r÷5 r_.c -u.: r_.c e_÷: ÷: .::_ c.:cr. :.:.u:c .Oue:.Oc_
÷: c˙–:õ_ ocucu ÷¸r÷5 r_.cc õe..: -u.: r_.c e_÷: cr..cO c: rcu _ç.
or eOc_ O..c.c c:: c..O :_ :≥u..u _¸e¬.
(o) o.ucuc, ÷Ω c˙÷¸r÷5 ÷: c: ocucuc rô. :. ÷5-u. ou:c._ eO_∞.
(o.) cr cOru ÷cc..u _¸-c :¸r e:. cr cOr ç u.c.çuc rcu _-u c..¬, . _r.OO e.u
cu _¸-e.u e:.cO eOu: cOrO u¸o.: r_ :¸r or eOc_ O..c.c
(o¸) õeç.c e÷O.∞crcu :O ecc uc e÷O.Ou ÷¸cc.
(o,) ._. ÷¸cc5∞.c r_.u.rc.c rô. ÷: -_.: rô. e.e:co. ..u c..u ece_
.¸.5rc¸Oue. ._÷..u e.e:c5.: rô.
(¸) . _r.O :_ -u.: .ç5 e:. õõ. cOO_ ÷.·:: rô5 O¸u ÷¸cc5 e÷O. ÷≥ rô.
õ.õ..ucue. uc.cu O.ecu ÷ç:u rc o¸: c˙† ÷..Oc O:r5 e_÷ r_ c: oO. o.ec.:ucu :.
c: ocucu c˙O¸O. c:: O.eo çrO. o¸:.
õ.õ..ucu O ouO .õ÷5 o:÷u rc ..÷ e r o¸:_: ÷..Oc O:r5O_ o.ec.:uc ÷≥r_ c:
o:c O÷c ¯ r o¸:_: O.c.r c:ocucu c˙O¸O. o:c: rc.: c:c.
e.. O.◊: eru¸÷..u õ.õ..u :≥uO. çe.u ÷cΩ o.cue.u . _r.O ÷: .r:u
¸cec.:uc :_u :.:.u:c eO_∞. :. c o..: e÷O. ¸cec.:uc :_ c..u ccr.Or o:c: rc
.¸u. -_.ec.ec.:: eo. õe..ecu . ce.._c c:.. ouO . _r.O o.÷c. ÷: cec.c. u.õr
..u .e.: o.÷uuec c:..: e_.O 1u,. eur.Or ÷ç:. c:÷r5 ÷¸ccc :¸r e_÷ er._.
Oc.c cΩ_ rô. ÷: õ.O.÷Ou: e_÷ e÷O. ÷¸cce5 :¸rc.O c_-çO †.r._uO †u.e.u o¸:
c_.¸u. e.. oc.. ¸O rc .¸u.O ¸O:_ Ou o¸:.
18 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
-≥ c˙c.¡: crc.cro<
-≥ c:c:: c:÷÷rc.O_O ouO ccu -≥ :. ec.
c˙c._uec Oc:..u :::Oc ÷¸_r__O e.u cç.:
:. rc.O_ uorc.c rô. :_u -≥ e.oe5 r.c
÷c_ rôe5 oO..:.Ocr cO:. c˙c._u uç:÷ :.
†˙ ç.u. _-.eçu o:c. r.cc ..¬_ec: r÷_:.
¸:_ u¸o., -≥ O.c:. ÷¸cc. ÷: e.o5 rô.
cu.†c ÷ç:. ÷Ocrc c˙..r.: rc.O_cr :_u
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e÷O. o.cr ÷.. ... o.∞c5 _-u cOr -OO .
_r.O r.ecu c:eOcu cO:u o:c o.∞c5 d÷
rcu o.c:u cr.-ç. rô. :_u c˙c._uc ÷ç:.
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e.. oO..:.Oc .: o.÷c.u ÷Oc.u -¸reo ._.
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ec. eçc.c:e5u:O ÷: ÷c.-≥ eçc.c:e5u:O ¸_rr
rc .ucu c..u o.c:ur c:÷÷rc. :≥uO. ç.
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e.. cç.:c :≥uO. çe.u eç.c o.∞c5 eçc.c:e5u:eo ÷cΩ. r.cc._ rc.O_ ÷Ocrcrc.c
erec. c..u c.:. o.∞c. O¸¬ rc .¸u.O: ¸:. uO¸c† ÷: r._.uc,c e:.c:c¸ _-. .¸u.
÷ç:. ¸¬r¬ _-. †.: ÷≥ eo. ce.u. eç.c o.∞c5 eçc.c:e5u:eo O..c.c rc.O_u Ou -≥
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o.∞c5 c˙c._u ÷: e:.c:c¸ r_.u.rc. cç.:c c.:. ._. r_.u.rc. r.ccr.:. O..c·:c
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eç.c o.∞c5 r.cc._ ..-. ¡º çrO. O..c: rô.O oecr.:c.
19 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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or.-ç. ¬.<....o cr.oro, r¿o:.ro< cç.rc (ITMIS)
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cr.-ç. c..¬...c e:.c:c¸ r_.u.rc. cç.:cr :≥uO. çe5 rOc: ÷≥ ereccu cO:.
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÷: rc.:.r rôe.: O.r. çcu _-c.
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eçc.c:e5u:O, :u :. ÷-..e_-u eçc.c:e5u:O ÷: :re÷c¸ eçc.c:e5u:O O¸u
o.c:uO_ r.cc ..¬_c ÷ç:. oO.. c:. O¸¬÷O:u ce_.∞ o.c:uc :c:. ÷ccu o¸:.
c.:. ._. r_.u.rc. r.ccr..:. O..c·:c :c:. c.:. .ç_, re..c.c r_.u.rc.c ÷:
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cO:. e5 :_u c.:. o.∞c5 r_.u.rc.c ÷: ÷.÷: c.:. .ç_ r_.u.rc.ec: Oc.ucr
oecr.. erec.
20 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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_-c.
21 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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÷-..O
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occ.Du.
÷-..O
÷..cO
c:
rcu _ç
occ.Du.
÷-..O
o÷cu cO:u
occ.Du.
÷-..O
o÷. oO÷u
÷: :u≥
ç.O ucc:
occ.Du.
÷-..O
uec.. ur:
rcu _ç occ.Du.
÷-..O
o.rc.cO
ec.. rcu
_ç ÷-..O
o.∞c5 -≥ 63 2 7 18 10 25 21
c.o.-. 26 1 6 8 11 4
o..e÷.... 6 1 1 1 2 2 -
orrO 95 3 9 25 20 38 25
._..c· -≥ occ.Du. er.c÷.
22 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ecçO5 -çç ÷.. :_o rô. 1
_c orrO 24
o.rc
c...:,.cO
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uç:÷ rô5 1
:.:c e..¬u¸.e5 -çç .: -¸†c.O 6
-ççO cO: c˙O¸O. ..uc rc. ÷: oc. ¸ro. 8
_c orrO 15
oçço -çç uç:÷ rc5 1
er.O÷ ur: rô. e:. c¸Oô.O o∞_ er.O÷ ÷::r .: -≥ -¸†c.O 5
_c orrO 6
ç.oOr ccO.
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-ççO cO: c˙O¸O. ..uc rô. 2
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coO c. c≥ -çç :.O :. ÷≥ -çç .: -≥ -¸†c.O 1
_c orrO 1
orrO 102
._..· eç.c o.∞c5 eçc.c:e5u:O
çõrO -≥ro<c O,¿,rõcO .õcO
Oc:..uc Ou õO . _r.O cOO_ +s r ÷.. çõ:O
-≥rc.c O¸_¸roe5 .õ÷5O_O c_. o¸:. :O: cOO_
¯ r cu5 _r÷5-c., .e._÷, e-_c,÷, c_÷:uc ÷:
-:ecuc ÷.. .õ÷5 ¸†˙ec ç -_.:.r o.O ucc:c.
:Oç, crecuc, 1..uc, :c.uc (÷e...:) ÷:
÷.ccc¸O (÷e...:) ÷.. u_..ô ..Ocu .õ÷5
o:÷u rc o¸:. ÷...u.ecu o.ec.:rcu õ÷u,
.oce. ç e.u. o.ec.:uc rcu _-u ce.ç ç -≥
ocrc .¸u.O cO: OO: çõ:O -≥rc.c O¸_¸roe5
.õ÷5 ..u -≥ e.Ouuu cr. o.∞c. ÷: cr.
r._c ÷ç:. eçOcr -≥ e.oe.u o.cr.. rcu
_-c. çõ:O -≥rc.c O¸_¸roe5 .õ÷5O_O
c_7e5 c..u oc.. O.ecu o.c.r ÷Oc.uc
eo.O: rô. ÷ç:. cO:_O c...uc, :.r..c ÷:
õe..gcu o.r.c.uc rc .¸u.: cr. o.∞c.
÷ç:. eçOcr -≥ ocrc .¸u. O¸_¸ro. ÷: c..u
o¸: õc :¸r oO:c:. .. :¸co.: eo. c. õ.õ..u
..u . _r.eo o.ec.:u †˙.: rô.: c. cOO_
÷.. cO:u eO_ç :. o.c.r -¸ç5 .r:.: rô.:
oecr.. erec. e.-≥ .õ÷5 ..u cr cOO_ ÷..
. _r.eo e:.ç ::, c::Oc ÷: ÷cc ÷:ec..:.Oc
÷..c: Ou o¸:.
:÷e._c.O ¸u†c.O (÷e...:) euçc_u:c ÷.ccc¸O
-._.eç.c ¸u≥u÷c.O eu.ceo (÷e...:) ÷o¬uc (÷e...:)
e-_‚c. ¸c.uc 1..uc (÷c:) ÷õ÷:c_u:c
r¸u¬.O ¸:._c c.r÷:.uc (÷e...:) :.c_u:c
cuc :c.uc c_cuc cr÷: oc.- ccc c.:.c (÷c:)
e¬u..crc (÷e...:) er.˙c.O ec._u:c cr÷: oc.- ccc c.:.c (cΩ_)
c.c reoOc rO.c cr÷: c.:..uc
cu_u:c .¸e_÷c.O (÷e...:) c¸e5uc.O o¸e.˙r. cr÷: :ucçc
:c.uc (÷e...:) .c¸÷c c¸÷c.O o¸e.˙r. cr÷: :ucçc (Protocol)
e:.er. (÷c:) euc._c ÷O† oc.-c.O (÷c:) õc.u..c
._..c · eç.c o.∞c5 eçc.c:e5u:O
c ¡.r.O co. çõrO -≥ro< .õcO cOr: oOO¡ (zcI+ crcr.-o çOc.:c O: õO)
23 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
õcco cOc: >
o.o. ç.ccc r.oc o<.¡ r¿o:.ro<c
c:ec c:c:: c..O :_ ÷Oc.u oc.:.c.cu _.. rc .¸u. ÷ç:. ..uO ÷5c: c.÷:
..Ocu c.:. o.c eO: o.rc..c rc .¸u.:, cçO. .¸u.: oO.. Ou o¸:. c. :::Oc
::Oc¸ rô. ¸eç÷. ÷≥÷r5_: O·::rcu :. ._cc .crcu ÷ç:. c.:. o.cO o¸:_:oe5
oO÷.. cΩ_ r_ c:O o¸:. e5 ÷ç:. c.:. o.ec e÷O. oO..:.Ocu r._uO o¸.c.O _r
rc õ.Oõç.._O_u ÷: r.ccr o.c:uO_u ÷≥÷r5 _-uuu -çO. .¸u.O rOc: rccu
cO:. :.crr ..uO ÷5c: r_.u.rc.cr oO..:.Oc :≥u..ucu ÷,. o.cr. cΩ_ O¸¬
o..cucr ÷≥ rôe.u ou:c¸O r.cc ..¬_ oO..:.Oc c_-ç ÷..e_.Ducu ÷≥ rcu _-c.
zo¡+ Oc.ec :u +o †u Ou õO c.:. e÷Oec ÷.÷. e÷Or ÷-..O c_cu ¡.+ r c.. õc.
c o:˙u c_cu ¡.¡ r c.. e÷Or ÷-..Or ÷ç:. :.:r ocO¸c ..u O¸Oc e.Ou _-u
o:c o...cu ÷: e÷-. o.cu: e÷Or ÷-..O ¸:_ o.cr .u. c.:. e÷O. ÷¸cc5
cΩ_ o.: ÷.. ¸‚euc¸ ÷: r.ccr u_..ô O¸u O·::rcu c.:. e÷OcO -çO. .¸ue5
¸:_ u¸.c¸Or ecuu5 rcc. ce÷., r.ccr o...cu re.:ec: Oc.uc ¸eç÷. O·::c :.
:.r.◊r o.c:ucu: r.r.D.cc :. ¸ceç.r :u:c¸ ÷¸_rc c: ÷-..Oru O¸¬ rcu
_ç. e÷-. e÷O. cΩ_ rô. ¸_rr rc .ucu -çO..u _-u e:ç :. eeOç. u_..ô :u:c¸
÷-..O rcrO ¸:_ uO. o¸:. c. ÷5c: re.:ec: c..uc ¸eç÷. ÷,. c.eç.c e_r5
er.....crO. c.eç.c ÷:O u.c.çu :. e÷-. crrcr -¸.u c:Oo. ÷ç:. .u _¸-
c:c:: :c.c .: c. eeOç. u_..ôu ÷-..eO: cΩ_ Oc.ucr ecuu5 rcc.
o.o. õcçO r¿o:.ro<c
c:c ÷: ._. ÷5c: c.÷: e_÷ r_.u.rc.c
rô.O ÷: c.:. ._. õuc O¸¬†c. rô.O :¸rOu
c˙† õcç5 c.-:.Ou :∫u. .¸u. ÷ç:. ¸uu≥
r˙5 ÷≥ rcu o:c:c c.:. õcç5O_ ...:.r -O
Oc.uc rô. ÷ç:. c:c o-.¬ ¸:÷.:cr uc:
eo. cO:u. ._. ÷5c: o¸:_: ec-c o..:...O_
rc.r.cr5 r_.u.rc.c rc .¸u. c◊÷ -¸ç5
c._uc ÷: ._. c._uc .r:.: rccu cO:.
cO:u ÷5c: c_∞c e_÷ r_.u.rc.c rc .¸u.
÷ç:. ec-c o..:... ... r._u ocO¸c c..Or
:_ u.c: e_÷ ÷¸_÷5 rcu _ç õcç5 cO.Or ouO
rc.r.ô o. ÷ç:. ec_.õ.O rOc: erec. õõ.
o.O_ c.c.Orc¸Oue. ÷: .::u:.Oe. cΩ_
¸ceç.uc ÷..u c:c:: ÷5c.çu rc.O_c cΩ_
rc o¸: o:c c:c ÷:O cO:u ÷5c: c...c ouO
rOc: rô. .r:.: rccu cO:.
c o:c c.:. O..c.c ÷: c:ec er.O÷ ÷:: oeur:
oc. c.:. o.c:u c.:. ._. õuc ÷5-u.ecu
çrOu _-u our_:.O ::Oc¸ rô. c◊÷ rOc:
rcu c.:. O..c.c c_-ç c.c_e5u: r.cr ÷c.O
÷: c:ec o..:..., eçc.c:e5u:, c_.: ÷c. ÷:
c_.: c._u o.c:uO_ r_.u.rc. r.ccr..:.O
÷: ._. õuc ÷5-u.ecu oO..uc ec.. rcu
_-u c.:. ..5 c_-ç c.c_e5u: r.cr ÷c.O
.r:.: -OO c:o. ..u O¬.: O¸¬†c. O c.:.
õcç5 r_.u.rc.cr cO:O. .¸u.O :¸r o o¸:.
u¸. cu .¸† o.∞c5 cOrO oO.. c˙† ÷: c.:.
o.ec c_∞c:.O ¸:_ u¸o. c◊÷ O¬.: ÷c_
o.r.cecu .ç_ ec._.÷ eOu÷ rô. ÷ç:. rOc:
rccu :e¬. c.:. õcç5 r_.u.rc.c ÷ç:. uO
cç.: ÷: ec._.÷ :≥uO. ç.O oecr.. erec. c
o:c r.ccr.. :. c_∞c e_÷ c:ec ..uO ÷5c:
r_.u.rc.c ÷ç:. e÷Or ÷-.. r_.u.rc.c :.
o¸.c5 rc.r.cr5 ç rc.:.r rccu :e¬. O.:.:.r
:. o.c:ur .¸OΩ ÷ç:. oO.. c:÷÷rc. :.
c:c:: rc...c. :∫uO.ç. o-.¬O ÷≥Ou o¸:.
ec.‚: cr.-ç. c..¬...c r_.u.rc. e:.c:c¸
cç.:c :≥uO. ç.: ÷.. c..¬...c rc.r.cr5
÷Ocrco. ..u c.:. ÷5c: r_.u.rc.c
r.ccr.. Ou o¸:. r._ c˙ce√çrc.c (Time
Slicing) O¸u r. c.õ:. rô. ..u r.ccr..
:. c_ç.c c.:. õcç5 r_.u.rc.cr o¸: rô.
oO..c.c rc o¸:. c_∞c eu.Ou õcç5 o¬
rô. ÷ç:. c.-:.O eçcu e.e:c5 õcç5 O¬.:
e:.ju o.r..c rô.O ccOc e.u :e¬. c.:.
c÷5c.çuecç cO:u .¸OΩO_O c_c5 e_÷ c.:.
e÷Oec c.÷: c.õ:cu ÷j:. O.o. O¸¬†c. rô.O
c÷5c.çu r.cc c5c.5O_O oO.. ÷e...u ç
÷≥rccu cO:.
24 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c:ec ÷Oc.u rc.O_c :_ oecr.: oc.. _.. rc .¸u. erec: O¸¬ oO..ucr ec.. rccu ÷:
÷,. o.cr. r._u oO..:. :≥u.e.u cΩ_ r.cc..¬_ ÷..e_.Ducr ÷≥ rôe.u zo¡+ Oc.ec c_.
..÷ os :_ :u:c¸ ¡!,!¯º r og:u o¸: rcu _ç.
zo¡z O÷c :_ç ¸c....ô oc..÷_.cu ¯z,ooo r c.:. e÷OcO -çO. .u _¸- o:c ÷.c.r e_÷ c:.O u.
rôe.u ou:c¸O c.:. e÷Oec ÷.c :u:c¸ ÷ç:. c: rcu _-c. c ouO, zo¡+.os.+o †u Ou e:r c:ec
o..:... :. eçc.c:e5u: ÷ç:. c:.O _¸- ¸c....ôu -çO. .¸u.O :¸rOu c˙† ÷Oc.u u_..ô
:u:c¸ !¯,¯¡º r o¸: rcu _ç.
c˙c.¡:oc ooOo rr. r.oc o<.¡c
:.:r 932,509
c_.: ÷c. 309,246
c_.: c._u o.c:u 38,070
oΩ orrO 1,279,825
o.o. ç.cccc r.oc o<.¡ c.crc zcI+ o:
ç.cc
o..o ooc
I
c¿.r c¬. c.
c¿.r c.¡:
ç.cr:
oΩ orrO crcrc
o.o.
ccOc
ço. o.o.
ccOc
O.◊o
O..c.o
o.cr..O, u:c :. ÷..c 427,364 1,970 1,257 - 430,591 33
÷õ_ c˙c._uc 43,766 2,313 5,984 53,167 105,230 8
o...cu 40,063 30,183 - 211,674 281,920 22
e÷-. 64,605 179 2,618 64,292 131,694 10
÷..: ÷Oc.u 15,873 3,389 - 2,253 21,515 2
r·.r.ccr 25,813 8,219 6,367 8,068 48,467 4
rc..u: :. O.◊: 12,343 8,341 10,150 4,872 35,706 3
c5:_ c:÷r5 63,603 45,380 89,153 2,990 201,126 16
-¸r - 1,437 22,139 - 23,576 2
oΩ orrO 693,430 101,411 137,668 347,316 1,279,825 100
¡ õ... O¸Oc ÷:: c.:. e÷Oc, oc. c.:. o.c:u cu5, õ.O õç.._, ocO¸c c:c.çu .: c¸ecu ÷÷.. :.
O.O÷..c: ..¬_, c:c ÷: O.◊: O..c.c ÷: c:ec -¸r, .... c:c cueOu oç:÷ eo.
ç.c ç:O r.oc o<.¡ Oo.ro<c zcI+ o:
ç.cr:c
ccO. ooOo
co.o. o..o c.Oòr
o..:... 584 5,210 162
eçc.c:e5u: 87 2,845 178
†÷:r :. c.eç.c e_r5 r.cc._ 58 1,661 7
c_.: ÷c. 26 2,063 96
O.O÷..c: o.c:u 117 748 637
oΩ orrO 872 12,527 1,080
:O r:ro, ç,r rôo zcI+
25 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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eOu O :.r.. o¸.c5 rcO z r ç c: rcu _ç.
26 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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27 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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cO:u o:c, †c. o.c.rcu rcr Oc.ucr O.c:.
r_ç, u¸. cu eO_çec._ ÷: ÷Oc.uc eOcu
cO:u o.c.rO_ Oc.uc oecr.: ..O.O O¬.
o¬ o. cO e:: o o¸:. ere÷ eO::, .r:.:
cr÷: :ucç o.c.rc c.- †c. o.c.rO_
oecr.: ¸:_ Oc.uc, c.:. ._. ÷õ.: rôe5
rc...c. _:_ rô. (:c.uc :¸c) ÷: _:_ .ç_
c:c:: e::eOu e.._c o.c.r Oc.uc zo¡! ç
...÷. o.crO c:Ou o¸:¸c oecr.:c. ce.u.,
-u: e:_ o¸:ΩO :.:.u:c eO_çec.e_ c..¬
c_ ..u o¬ ..O.r :-. :. ::rc e.._c
÷¸cc5 :::O, o.ucu õcç. o¬ rô.O ç, o.ucu
c.çr er.O.: ¸ç..uc o¬ rô.O ç e:: Ou
o¸:. e.._c o.c.rec, õe..ecu. . _r.eo
c..u ocucu ..u.u: Ou †c. o.c.rO_,
r.cc÷..uc oecr.: ..O.O O¬. o¬ Oueu
u5 cc ce. ocucu erec: -_c,5 o¸: rcu
_-c. eOu: u¸. cu eO_çec._ o.c.r rc. ce.
ocucu O..c: rc_. e.u. cuc :. :c.uc
÷.. ec.‚: uç:÷ eO_ç .õ÷5 r¬u5 rc_e5
O¸ç.:r. e...u ¸÷.: er.O çrOc. õeç. õu.c
eO_çec.e_ ÷¬ õD_:.Ocu .¸¬ c¸O¸:o.O c..r
.: -¸reo .¸†::o5 ÷.. rcu o:c., õu.c
ouc.: u..._:.Oc cO:O. .¸u. ÷: eOu:
O.:.:.r eOu÷r5 :≥uO. ç. O¸u rc...c.
ocucu †˙.: rô. ÷ç:. rc.:.r r_ c: eo.
28 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o,†r.¡: o.o. o¡. rco.c.c:
o¬ -≥ ouc.: ÷: cΩ_ -≥ cçu.r ÷::O
r_.cc :_ :c.r.ô -≥ r.cr o¸: rô.
÷ç:. -≥ r.c ÷c_ rô. c◊÷ zo¡¡ ç :≥uO.
≥u -≥ c:c:: O¬.: .r:.: rô.
e.o5 r.c ÷c_ rô.O :. -_.:.r rô.O
÷:.c o. c◊÷ -≥ c˙c._uc .r:.: rô.
.:. c..¬...ccO :. o.∞c5 o.c:u ÷ç:.
e:.c:c¸ :.r..c :≥uO. ç.
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r_.u.rc. .r.:. Oc.uc ÷ç:. ¸c.c ..c.
.r:.: rô.
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r_.u.rc.c rô.O ÷: c..¬...c
r_.u.rc.c :. c÷5c.çuc :c:. o..
r_.u.rc.c :. -¸ç5 c._uc O¸¬ †c.
rô.O ec-c o..:... .¸†r._u c..Or :_
rOc: rô.
c.:. o.cr..O O¬.: ::Oc¸ rô. ..u ce.
÷..r.c c˙÷ccr o¸: rô.
re..c.cr c5:_ c:÷r5 ÷Oc.u O..c·:
rc.:.r rô. ÷: ÷5cc. rô.
c÷..c r_.c ÷Oc.uc ÷ç:. r_.c...
eru¸: c5:_ c:÷r5 ÷Oc.u O..c·:
.r:.: rô.
oO..:. ÷:: cç._cu ÷ç:. ÷..: o.cr..c
÷cccu ≥cc:u -_.¸uo. ÷ç:. „Oeu.c.c
÷Oc.u rc.r.cr5 cO:O.e.u c..
÷.÷: ocO¸c :.ec o¬ o.:, c.:. .c
r_.u.rc.ec Oc.uc: ÷.. c:ec .c
oO..:.Ocu : rcr o¬ o. e::eOu c.:. .c
c.÷: ..O.r cO:O. .¸u.
c:ec .c r_.u.rc.c :_ eç.c :. õeç.c
.c :_ ÷≥÷ ÷5c..cr cO:O. .¸u.
c.:. ._. õuõçc.Oc ÷: O.o. O¸¬ †c. rô.
cocr o.o. o¡. crcrr rc.OO :,.õo
cçc. O: c..: rc.o.o.
-≥ ouc.:O_ orcr eOu÷o5 O_r. -≥ cçu.
cΩ_ rô. erec: ¸¬ oO..uc ec.. rccu
o.∞c. Oc.uc rô.O rc...c. .¸u.
u: :. ec._.÷ .r:.: rô. :_u -≥ e.o.
c¸:¸c :¸ô. ÷: .. :¸ô. O¸_¸ro.O oO..
rc...c. .¸u.
÷..:c :_ c¬.OO c:õc :¸r c_÷c. oO..
cç._cu eOueOu o.∞c5 ÷:.cr O¸¬÷O:u
cO:O.e.u c..
ocO¸c ÷¸r÷e5 rc.O_ec ç ÷cg c.c.Ocue.
oç:÷ _-. .¸u. O¸¬ †c. rô.
eç.c o.∞c5 eçc.c:e5u:O ÷: .ç_ :.
r.÷5c.çu o..:...c ÷ç:. c_eO_u o.∞c5
c˙c._u :. e:.c:c¸ r_.u.rc. cç.:cr
(RAMIS) ÷: cr.-ç. c..¬...c e:.c:c¸
r_.u.rc. cç.:cr (ITMIS) :≥uO. ç.
c:cO oc: O.◊: O..c.c eO: c...u ∞cr:Oc
¸:_ u¸o. :_u cO. ._..c O.ecu .r:.:
o.c:u -OO c: rô.
.¸† o.∞c5 _-u cOrO .¸_ecu c˙† ce. ._.
ec._.÷ c:e...uc ÷: c.O:r._u rô.
29 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
çcO,c, ç.oOr c. o.o. o_. rrrOc
c¿-ç O.or.O zcI!
zcc+ ç.r + çor o.o. o_. r¿or.ro< (O.ro) crcr ¯, s cc º
O.rr cOcr .o, oç_ ço.r.Ooc. õcr rrr ror _ç.
zoo+ or + çcu c.:. .¸. r_.u.rc. (O.r.) cue: ¯, s ÷: º O.u: ouO c.:. .¸. re..c.cO
÷.ecr.O c.:. .¸. rOc: o¸.c. ÷ç:. ocO¸c, o.c.rc ÷: c.:. .¸. :::Oc c_-ç O.c:.O ur: r_
c: o:c cc õ÷c:u cu: erO5c: c.c¸e5u:eo ç eçOuOc rcOu †uec ç c.c¸e5u:OO ¸†˙c: r_ c:
Ou o:c c ouO ç_ eç.c u.c.†:c, c.˙ec..r c¸ ..u ÷: e.O5 e..c ÷ç:. o∞_ Ou o¸÷:e5u: ÷:
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c ouO, zo¡+ Oc.ec c_. ..÷ uOc :_ c:ec o.∞c., õcç. ÷: .c .¸u. c_-ç :.Or.¸r ç:: e..
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oOe-..cr ¸-. .¸u.O :¸r Ou c˙† e.. r.¸c˙ce√çcO o∞_ c..u ÷.cO o.c.r ¸cu:u e.. O.c:.eo
o¸:_: eo. zo¡! Oc.c ÷ç:. o¸÷:e5u: ÷r÷ rôe5 ç cçu5 rc.: o.c.r ÷: oeur: ¸cr¸cu c_-ç
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r_ :¸r oeur: e:.c:c¸ ç e.. O.c:.eo o¸:_: eo.
31 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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zo¡¡ Oc.ec ç :≥uO. ≥u uO -≥ r.cO ouO o¬ -≥
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c¸. c¸cu ¡¡,+¡s ÷O c¸. c¸cu ¡!,z!¯ çrO. ÷ccO
z¯.º ru Oc.uc o o¸: o:c O¸Oc o.∞c5 ÷: e..
-≥O¸O cO:Ou drc. O¸¬o., e÷O.∞cr our¸:Oc
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cr: rô. ç e5 ÷ç:. e:: o o¸:.

e.. r.¸ c˙ce√çc :_ ç -¸r :. .¸. e÷O.
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.: -≥ o.∞c. ÷ccO +¡ r ¸:_ Oc.ucr O.c:. rc
o¸:. e..Oc c. O.:u ÷: r¸-≥ e÷O. O..c.ccu :
Oc.uc .uç..c oe5 -¸c,. ...ec OO ç ÷÷..c:
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eO_∞5, ≥5er._ :. .ç.÷.c, ÷D.cr :. u.c.çu
cu e÷O.O¸ r.cc÷..uec Oc.uc cO e:: o o¸:.
og:u :≥uO. eçu ¸¸- :u -≥ ouc.: r.c
cOe: -≥ r.ec O Oc.ucu c_-. rccu eç.c
c˙ec.:uc .: O cr: r_ o.c -≥ o.∞c.
c¸. c¸cu º¡,s¯e çrO. ÷ccO ¡¡.¡ ru Oc.uc o
o¸:. oc:. r:ccr .: crr cçucu e÷÷ -≥
c¸uo. e::eOu e÷÷ -≥ o.∞c. c¸. c¸cu ze,+ºº
çrO. ÷ccO ¡z.¡ ru O¸¬ o o¸:. eç.c u.c.çrcu
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-¸u õO e..Oc c. o.ucuc o¬ o. ÷: ≥5O¸5 ÷:
32 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
.:c¸u oe¸õc o¬o. c :. ÷5-u. o.∞c5 o¬ o.
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zo¡z O÷ec ec-cO.˙ ÷: ..c: ..÷O¸ o.ucu o¬
rô. ÷: e.O5 e..c ÷..Oc rô. ÷ç:. ou..uc
rcu ¸ç rc...c. e::eOu o.ucu o¬o. ec. -≥
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r o¬ o.r c..r ecuu5 rccu ÷¸¸rc c: O¸¬
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o. ÷ccO ¡.¯ r O o:c o.ucu O5u.r. o¬ o. cO
c..u O.ecu e:: o o¸:. c. e::eOu. o.ucu
.: O cr: r_ o.c .: -≥ o.∞c. ÷ccO !.e ru ç,
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o.ucuecu ¸ç o.∞c. c÷.c O÷cO O¬. ÷ccO +.e
r o¬ o.r cçc.uc rc o¸:. ocucu †˙ .¸uo.
÷ç:. :≥uO. ç o¸: -≥ uç:÷ rô5 ÷: e..Oc c.
O.:u, .·: ¸crc., o¸.g5, c÷.cur u.c.çu,
:˙. ÷: -¬ ¸˙. o.ucuc c:: O¸.. u÷. Oc.c
:. .Ou e:.Oec._ ÷Oc.u -≥ o.∞c. ÷ccO ¡¯.s
ru c:_ .ecc. ÷.÷:cr e¸÷ zo¡z .¸ ..÷ º :.
÷¸÷çe5 ç o.ucu .: cçu5 O -≥ ..u ¸ç o.∞c.
zo¡+ Oc.ec c. r.¸c :_ c¸. -¸cu ! ru
o¬ o o¸:.
-≥ eu.Ou o.∞c. :_ ..÷: :. oc rô5, ec._ ÷:
c.:. e÷Orcue.u ¸ç ÷..: o.cr.. ∞cr .ç¸
r¸c eceuu e¸÷ Oc.ucr ecuu5 rcc.
. ¸r. .: -¸rO õ÷u rcu ¸-u ¸.c c¸Oc¸5,
c.:. O..c.c õ÷u rcu ¸-u ¸.c :. ¸.c..
c¸Oc¸5 ÷: r¸ o.∞ce.: o¬o.r ecuu5 rc o¸:.
zo¡z O÷ec c_. ..÷ º :_ c:ec õcç. O c¸. -¸cu
¡,z¯¯ O ÷.ecr.O zo¡+ O÷ec c. r.¸c :_ .Ω õcç.
c¸. -¸cu ¡,z¯¯ r õc. e.. õcç5, Oc:u õcç.
c¸. -¸cu ºzo ru ÷: c.:. o.ec.:u c¸. -¸cu +eº
ru ÷.uõ: eo. Oc:u õcç5 ÷ccO +.s ru ¸:_
.c o:c c.:. o.ec.:u ÷ccO !.o ru c:_
e..÷ o¸:.
õu.c ouc.:cu: õD¸uc ÷: eç.c .c ec._
ouc.:c ÷.ecr. O.ecu c:_ ..O.r c¸O:.
e::eOu zo¡z O÷ec e.. r.¸ec ç ç.eç.uecu
÷ccO !.+ r O ec._ e.o5 ouc.:c e..
Oc.ec ç ÷ccO !.z r õc. ceO : cO:u ÷..r.c
O.:.Oc.ec: c:c¸cr e¸÷ o.cr.r rOc:
:. ÷5-u. c÷5c.çu õcç5 c:_ .ecc. c.:.
.¸. rc.r.˙:OcO oOr.. ÷¸÷. .¸u. ÷ç:.
c:c õ÷u oeur: c..¬ :. e÷O. .: Ou õcç5
r_.u.rc.c ֍:. .r:.: rc...c. o.c5c
rc :e¬.
c.:. .¸. rOc:O¸ç c¸O: ocec...:.r :::Oc
...ec OO ç o.c.r rOc: cΩ¸ o.O c:÷r5
÷¸¸÷. ÷ç:. c.:. o.ec.:u o-.¬O ÷≥ rcu ¸ç.
:.:r c5:¸ c:÷r5 ÷Oc.u O..c·: rc.:.r
rcu ¸-u o:c, †õ u¸..``, .. u¸..``, ..
u¸..``, cc u¸..`` O¸u c.eç.c :. ..cc ÷Oc.u
O..c·:u ç oeur: c.eç.c :. ..cc ÷Oc.u
O¸¬÷O:u ç ÷ç:. ÷õe.. oO..uc ec.. rcu ¸ç.
o...cu, e÷-.c ÷: O·::c c:. o.ç ..uO ÷5c:
÷Oc.u O..c·:u ç o-.¬O rc.:.r õc. zo¡+
c_. ..÷ º :_ c.:. o.ec.:u ç.eç.u. c:.:cr
e¸÷ ÷ccO !.z r õc.

c:ec .Ω õcç. :. c:ec .Ω o.∞c. o:c eOu÷ Ou
ocO¸c :.c O÷ec c_. ..÷ uOc :_ c¸. -¸cu !ºz
r e:O: ç.eç.uec c:.:cr e¸÷ ÷ccO ¯.e r õc.
cc zo¡z O÷ec c. r.¸c :_ c¸. -¸cu !s+ e:O:
ç.eç.u. c:.:cr e¸÷ ÷ccO e.! r õc. o.∞c5
..e5 :.c r_.u.rc.c rôe5 ç c:c c:c:
c:c¸ o:rce.u o¸: o:c o.∞c. ÷¸¸rc c:
o¬o.r cO:u :::Ocr cOe: ec._ eu.Ou õcç5
÷¸¸rc c: e¸÷ .¸c. .¸u. e::eOu o.∞c5
..e5 :.c zooº oO÷.uec ç ç.eç.uecu ÷ccO +.¯
÷O zo¡+ ÷¸c:¸5-c Ou õO ÷ccO ¡.e r çrO. o¬ o.
:_u e.c c_-. eo.
O÷ec c_. ..÷ uOc ÷ç:. Ou :.Or.¸r o.cu ÷:
zo¡z O÷c :. ÷u÷uçu.:.r o.cu + O.O cOe:
¸†˙c: rc o¸:. o.∞c5 -≥O¸ o-.¬ Oc.uc, cr:
r_ o.c .: -çç ÷¸¸c eO_∞. ÷ç:. cΩ¸ rôe5
÷5cc. -¸c,. o¸: o., o.ucu c.. :::OcO
c:o. ÷: eç.c o.c.r rc.r.cr5 eo.O: o.
..u O÷ec oO÷u r.c:O :_ o.∞c5 O¸¬Ou o¸:
-OO oecr.. erec. zo¡¡ O÷ec ç :≥uO. eçu
¸¸- uO -≥ r.c ..u ¸¸e-u o.∞c. r...r¸O
O¸¬Ou o¸:¸c -¸.ec.ec.:: Ou o:c r.ecu
c.. :::OcO c:Ou e¸.r o.c.r :::Oc cOe:
eo.O: Ou o.c.r rc.r.cr5, o¬ ec._ ouc.:r,
o-.¬ c¸ ÷..c:.O, cu ecc :≥uO. eçu ¸ç
.¸¸c5 rc...c.O¸ -¸c,e.u o.c.rc r..ur¸O
c.. :::OcO c:o., -¸r ¸O.¸:.O Oc.uc o.,
o.ec.:u ..¬¸ O..c.cO¸ -≥ õ¸5cu r.¸c
oO÷u o., -≥ uç:÷ rô5 O¬.: :.crrc.c rô.
÷: uO -≥ r.ec r.ccr..:.O uO.¸. c◊÷
e:.c:c¸ :.r.◊r OOcO.Or :≥uO. ç. ÷: ..uO
÷5c: ÷Oc.uc ..u -≥ c˙c.¸uc .r:.:
rô. ..u o.∞c. ¸:_ cu o¸:¸c oecr.. erec.
o.∞ce5 rcr O¸¬o.: ocO¸c ÷..Ou :_ c.:.
õcç5 r_.u.rc.c ÷cc e¸÷ o.r..c rô.:
:_u zo¡+ ocO¸c ..u ueoçuc rcu ¸ç c˙†
ç.eç.u.c.†:ecu ÷ccO ¯.s r ocO¸c :.cr cO:O.
.¸u.O :¸r eO:¸c -¸.ec.ec.:: eo.
Oc..c:uc o.r o. e::eOu :¸õ≥¸ ..˙:.
¸cec.:uc ¸:_ c.. ÷: õ≥¸ ..÷: ÷e...uc
33 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
e:: er.Oe.u ¸r. õ≥¸-¸ ..¬¸ec .¸.
:::Oc c:c: O o:c c..u c: e.e:c5
c˙O¸c o¬ rc .: :¸r õc. -u: e:¸ u.c.†:
÷ç:. Ou c˙c.¸: c¸ ..u ÷e...uc rô.
÷: :.:.u:c e:¸ ce¸: :. õu.c ouc.:ec:
÷.ecr. O.ecu ...÷. õD¸ucu ¸r. -u:
e:¸ u:.: ÷÷..eo e.e:c5 o¸.cc o¬ rc
.¸u.O ¸cr.ô Ou o¸:. ecç.¸r o.ec o.c.r
rc.r.cr5O¸O c:÷r5 ÷¸cc.O .¸. o.c:u :_
÷5c: cçO. .¸u.O e:: eOcu c:cO oc: ¸r.
õ≥¸-¸ ..¬¸c :. -u: e:¸ u:.: ÷÷..O cu
O..c.c eçer: .¸. :::Oc Oc.uc o. o.c.rec
÷.÷: ¸O.¸:. ..O. ¸:_ u¸o.O e:: Ou o¸:.
ce.u. eO_çec._ ¸O.¸:.Oc ¸:_ u¸o. e::
er.O .ucu eO_çec._ ec._ ouc.:r o¬ o. ÷:
÷:u...c .: Ou c¬uc o¬ o. :_u c.:. .¸.
rc.r.cr5 .r:.: rô.O ç e:: Ou o¸:.
::rc ÷.cO o.c.r c˙÷cc, c5:¸ c:÷r5 ÷ç:.
O :c÷.c c.:. o.ec.:u ÷: ceO: cO:u ÷...r.c
+ O.O > çcO,c c.o..cc
o,. ò_cr
çcroc
oror orc,c 2012
rr.
2013
(ç,crcOrr )
2012 2013
rr.
2012 2013
r.Or._r
o.∞c5 ÷: c∞u 529,390 484,084 774,314 783,235 1,067,532 1,203,166
o.∞c. 521,100 481,745 759,915 780,218 1,051,461 1,183,166
-≥ 458,700 435,397 678,105 706,684 908,914 1,052,200
-≥ eu.Ou 62,400 46,348 81,810 73,534 142,547 130,966
c∞u 8,291 2,339 14,399 3,017 16,071 20,000
õcço 833,048 862,400 1,257,437 1,275,085 1,556,500 1,712,426
Oc:u õcç. 589,059 595,187 886,193 920,017 1,131,023 1,224,927
O¸Oc 169,984 188,640 257,421 290,720 347,747 391,444
ec._ e.o5 204,067 221,755 321,491 367,572 408,498 444,835
oeur: 215,008 184,792 307,281 261,725 374,778 388,648
c.:. oec.:u 255,540 279,230 384,402 369,005 443,973 503,984
oeur: (11,551) (12,016) (13,158) (13,937) (18,497) (16,485)
ç.∞cO c.c () çr˙rrc(›) (67,960) (113,442) (126,278) (139,799) (79,562) (41,761)
cocr çcO,c c.c () çr˙rrc(›) (303,658) (378,317) (483,123) (491,850) (488,967) (509,260)
o_.rc 303,658 378,317 483,123 491,850 488,967 509,260
õeç. .¸.uc 70,116 72,937 161,752 95,379 180,760 149,873
eç.c .¸.uc 233,542 305,380 321,371 396,471 308,207 359,387
o.∞c.ç.eç.u. (`) 6.9 5.5 10.1 9.0 13.9 13.6
Oc:u õcç5ç.eç.u. (`) 7.8 6.8 11.7 10.6 14.9 14.1
c.:. o.ec.:uç.eç.u. (`) 3.4 3.2 5.1 4.2 5.9 5.8
o.∞c5 :.cç.eç.u. (`) -0.9 -1.3 -1.7 -1.6 -1.0 -0.5
÷.÷: ocO¸c :.cç.eç.u. (`) -4.0 -4.3 -6.4 -5.6 -6.4 -5.8
.¸..c· c.:. .¸. c:c:: eçc.c:e5u:O
34 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
- zo¡+ ec-cO.˙ s Ou ∞ ÷O -¸c¸O¸:eOu c˙† c..¬ +¡ r .: O õe.. eO_ç c..¬ -≥ ouc.:cue.
O¸. r.¸c çc¬ rcu ¸ç.
- zo¡+ ec-cO.˙ os ¬.5 .ç ÷: -.-÷ e:¸ õe.. eO_ç c..¬ -çç cO:O ou:c.: rcu ¸ç.
- zo¡+ .¸c o+ Ou ∞ ÷O oc:.c¸ .: O õe.. eO_ç c..¬ -çç ¸:_ ç.u ¸ç
- zo¡+ :u z¡ Ou ∞ ÷O c::cu .: o.ucu ec. -≥ cuOu ¸ç.
- or eOc_ O..c.c rOc: ÷ç:. uç:÷ Oc.cu ÷: -u.: ceç. e¸÷ :≥u..: ceç., .ç¸ cu:-zo¡+
O.◊: eru¸÷..u uec.. or ¡, zo¡+ :¸ ¡¡ †u¸: or ¡s¡s+o çcu o: õe.. .¸÷. ueoçuc ..u
cr..cO c: rcu ¸ç.
- zo¡+ :¸ ¡¡ Ou †u ÷O e¸.r Ω,. re¸. ¡ r .: Ou õe.. eO_ç c..¬ -çç c¸cc¸ +o çrO. O¸¬ rcu
¸ç
- zo¡+ :¸ +¡ ÷O ec..., -Oc, r˙ o.:.c, e..c¸, c÷ ou:c.: O u¸O5 c÷ ÷: .çOc r˙ .: O o.ucu ec.
-≥ re¸. ¡ r .: c¸. zoo r e:. ÷ccO +o ouc.:cr e¸÷O ÷e...uc rcu ¸ç.
- zo¡+ :¸ +¡ †u ÷O ÷O.c.õr ¸r.. eOu÷ eu.rcu ¸ç c:c¸ .ç.÷.c c˙..O ÷ccO so O O¬. o¬, ÷c:,
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- ≥5O¸5, ÷c¸.O, ÷..ce¸.÷, ≥5O¸. ÷,ç.O .uu. ≥5er._ e:. o.eç.rcu ÷: c..¬ cO.:uc ÷ç:. O
e..Oc c. ÷ç:. O u.c.çu -çç zo¡+ :¸ +¡ †u ÷O ÷e...uc rcu ¸ç.
- zo¡+ :¸ +¡ Ou ∞ ÷O ÷u re¸. ¡ r .: Ou õe.. eO_ç c..¬ -çç c¸. z¯ r çrO. O¸¬ rcu ¸ç.
- zo¡+ oe..÷: zz ∞ ÷O e¸.r Ω,. re¸. ¡ r .: Ou õe.. eO_ç c..¬ -çç c¸. +¯ çrO. ¸:_ ç.u ¸ç.
- zo¡+ oe..÷: zz Ou ∞ ÷O oc:.c¸ re¸. ¡ r .: Ou õe.. eO_ç c..¬ -çç c¸. !o r çrO. ¸:_
ç.u ¸ç.
- zo¡+ ÷¸c:¸5-c z¯ Ou ∞ ÷O O¸¸ ocucuc .: Ou e÷÷ -≥ ouc.:c ÷e...uc rcu ¸ç.
- zo¡+ oec¸ zo Ou ∞ ÷O õ≥¸ ..÷: c:: O.eo ¸reOu o.r.ccO ÷e...u rcu ¸ç.
õcco cOcr »
c..r crcrroc rc.o.o. orO.˙ crcr.-o zcI+
- zo¡+ ec-cO.˙ zz Ou ∞ ÷O -¸c¸O¸:eOu c˙† eç.c -u: e:¸ c¸ ..u c:: O.eo
÷ç:u c˙† ÷e...uc rcu ¸ç.
zcI+ cc-oO.˙ zz cO cçcc -ro cr_ ò_ .<rO_ cOrc õO
çcroc ò_ (_OocrO o,cc_) cOrc (o,cc_)
14.12.2012 23.02.2013
ecO¸-:re.u ºo 159 162 3
ecO¸-:re.u º¯ 167 170 3
¸r. :eO. c÷¸ 115 121 6
¸r. ÷cc c÷¸ 142 145 3
¸r. cce:¸ 106 106 0
¸r. r.ccr cce:¸ 111 115 4
zcI+ çcc_ oc cO -_c,O,rcOr c˙† c _.r. ocor _ccc..r. cr.òco õcr çror ror _ç
õ≥_ ..cr O.cc
c˙c¬.orc (orr) zcI+ çcc_ Iº çrO. O ..cr zcI+ çcc_ zc cO cc.‚r çrc.rc
c,o◊ rO orr ..cr cO.Oo
cOrc %
orr ..cr cO.Oo
cOrc %
orrcOo,. ..crO
ocrOo,.
orrcOo,. ..crO
ocrOo,.
0-30 0-30 3 30 25 3 30 25
31-60 31-60 4.7 60 35 4.7 60 35
0-60 10 - -
61-90 61-91 7.5 90 40 12 90 10
91-120 91-121 21 315 40 26.5 315 40
121-180 121-181 24 315 40 30.5 315 40
>180 >181 36 315 40 42 420 40
.¸..c· ¸r. õ≥¸-¸ ..¬¸c ÷: c.:. O..c.c eçc.c:e5u:O
35 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.:.Oc.ec O.÷∞cr -¸c,. e::er.O eç.c :.
õeç.c ocec.. ...ec OOç zo¡+ Oc.ec c_. ..÷ º
:_ ç o.c.rc ÷ccO e.º ru Oc.uc õc. e..Oc c.
o.ucuc o¬ o. :_ c :. o..: e÷O.O¸ õe..ecu
r¸-≥ e÷O. .: oc:c: -¸c,.r o¸: r_ ç ¸†rô5,
÷D.cr, oeur: e÷O. ÷: u.c.çu o.ç re.:
o¸:¸: e÷O. o.c ÷: r.ccr o.ec o¸: O c:c:
Oc.uc ¸:: c.:c _.. rc .¸u.O e:: o o¸:.
er._. c.˙ec..r c¸ çc.rcO ouO (c.çr
Oc.c zooeo¯ =¡oo) O.c.r ¸r...c cçu. .:
..uc rcu ¸-u ¸ç..uc zo¡+ Oc.ec ÷¸c:¸5-c
oO÷.uec ç ÷ccO e.z r O o:c zo¡z Oc.c
oO÷.uecç cc ÷ccO º.z r e¸÷ O.c:. õc.
zo¡z Oc.ec ÷ccO ¯.e r O O.c.r ÷...u. ¸ç..uc
zo¡+ Oc.ec c_. ..÷ º :_ ç ÷ccO ¯.s r õc. ¸:_
o.c.r Oc.ucr oc.. rc .ucu .: -¸rO õ÷u
ou..uc rcu ¸ç ¸:¸ .ç¸ c:c::c ÷..
eO_çec._ ec._ ouc.:r r.ecu o¬ o.r
ecuu5 rc o¸:. ce.u., ecç.¸r o.cO ¸-.
eçu .c c...c O¸¬ Ou o¸:¸c ç oecr.. erec.
õu.c ouc.:rc ¸:_ u...¸:Ocru cO:O.
.¸u., .c c÷.c.c ÷ç:. ÷.. c¸uo. ÷: e:.c..:
o.ucu ÷: e..Oc c. ÷ç:. ec. -≥ ¸:_ ¸c. O¸u
rc...c. :÷e÷ eO_ç e..c cΩ¸ o. O_rO. .¸u.O
rOc: rô. :_u õeç. o.ec ÷.÷: Oc.ucr
o¸: rc .¸u.O :¸r õc. c ouO, zo¡z Oc.ec o¸.e¬..
c¸cu e,seº r O ÷.÷: eO_ç e..c zo¡+ Oc.ec .¸
..÷ º :_ ç ÷ccO z.¡ ru cu5 o¸.e¬.. c¸cu e,¯zz
çrO. o¬ O o:c cc e.O5 e..c ::rc ..O.r
cO:O. .¸u.O ¸cr.ô õc. ÷D.cr rc..u:ecu ¸ç
o.∞c. ÷ccO z!.z ru o¸.e¬.. c¸cu ss+ çrO. O¸¬
o.: e÷Or ec.. ÷ccO ¡¡.! ru o¸.e¬.. c¸cu
!,ºzz çrO. O¸¬ o.: e.O5 e..c .r:.: rc
.¸u.O ¸cr.ô o o¸:. ce¸÷. -u: e:¸ u.c.çu,
e..Oc c. ÷: c.˙ec..r c..¬ o.ucuc o¬ o. ç
e.O5 :¸uc c:c: rc .¸u.O ∞cr o o¸:. e.O5
e..ec ≥.rc:.Ocu O_rO. .¸u. ÷ç:. ocucu
†˙.: rô., o.eç.r e¸÷ õr¸cc -¸.r: ccOcu
†c. rô. ÷: eç.c o.:.c u.c.çuc †c. rôe5
O¸ç.:r. e...u ecuu5 rcc.
36 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
! O.O > ç,crcOrr.r c. rr. ç.∞co cc õcço or.c,c. zcI+
o,. -_cr
çcroc ç,crcOrr r.Or._r cOrc
oΩ ç.∞co 925.6 780.2 -145.4
-≥ ç.∞co 840.9 706.7 -134.2
cçcc ç.∞cO cçc.orcOrrO
o.∞c5 ÷: ¸.c .: -≥ 159.0 154.7 -4.3
cr: r_ o.c .: -≥-eç.c (.ç.) 107.1 91.9 -15.2
:.:c e..¬u¸.e5 -≥ (eç.c) 25.8 15.6 -10.2
oeur: 2.4 1.9 -0.5
_c orrO 294.2 264.1 -30.2
co. cçc.orcOrrO
o.ucu -≥ 74.5 58.6 -16.0
cr: r_ o.c .: -≥-o.ucu (.ç.) 98.1 85.0 -13.1
:.:c e..¬u¸.e5 -≥ - o.ucu 18.8 11.1 -7.7
Oc.c .Oue:.Oec._ ÷Oc.u -≥ 69.1 43.0 -26.2
e÷÷ -≥ 30.6 26.4 -4.2
õe.. eO_jc..¬ -≥ 34.7 33.7 -1.1
u.c.çu (õe.. õ.õ..u -≥) 144.8 118.1 -26.7
≥5O¸5 .: u.c.çu -≥ 47.7 41.9 -5.8
-u: e:¸ u.c.çu 26.3 13.3 -13.0
e..Oc O.:u ÷: oeur: 70.8 62.9 -7.9
_c orrO 470.6 375.8 -94.8
co.-≥ cçc.orcOrrO
.:c¸u ≥5er._ 52.2 46.1 -6.1
_c orrO 52.2 46.1 -6.1
çcrrr
õ≥¸ ÷eç. -çç 18.8 18.1 -0.7
-¸c: ..÷: ÷: oeur: 5.0 2.6 -2.4
_c orrO 23.8 20.7 -3.1
-≥ cr.Or ç.∞co 84.7 73.5 -11.1
.Ω õcç. 1,370.7 1,275.1 -95.7
Oorr õcçO 969.5 920.0 -49.5
O¸Oc ÷: eo:u 289.5 290.7 1.2
ec.¸ e.o5 356.3 367.6 11.3
õ... O¸Oc e.o5 90.6 91.5 0.9
c.:. ÷÷.. ÷: o.c:uO¸O c¸Oc¸5 46.3 43.7 -2.6
oeur: 186.9 126.6 -60.3
c...r õcçO 401.2 355.1 -46.2
.¸..c · c..¬...c e.e:c5 eçc.c:e5u:O ÷: c.:. .¸. c:c:: eçc.c:e5u:O
37 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c,c ÷O:u ! > o.o. ç.∞co zcI+ ( orO.˙ c,cr,O-o)
t'w'n' 25%
ksIamdok n≥
21%
cd'f.d'n' 3%
j'.='ix'n' 6%
wdkhk
n≥
8%
ú'fj'n'
4%
fiia 3%
wfkl=;a 3%
n≥ fkdjk 9%
wd∞hï
n≥
20%
uq`M wd∞hfï ixhq;sh
n,m;% .dia;= iy
wfkl=;a 3%
wd∞hï n≥
22%
foaYSh m˙fNdackh u;
mokï jQ n≥ 28%
wdkhk u;
mokï jQ n≥
47%
uq`M n≥ wd∞hu-uQ,dY% wkqj
oocc ç.∞co
zo¡+ Oc.ec .¸ ..÷ º :_ c:ec ÷.÷: o.∞c.
c¸. c¸cu ¯so,z¡s r O o:c cc zo¡z O÷ec c.
r.¸c :. ÷¸÷çe5 ç ÷ccO z.¯ r O¸¬ o.r.
o.∞c5 -≥ ÷ccO ¡!.! ru ç eç.c c˙ec.:uc
.: Ou -≥ ÷ccO ¯.z ru ç O¸¬ O o:c o.ucu
.: cçu5 O -≥ o.∞c. ÷ccO ¡.+ ru o¬ o.
cu rc¸. e::eOu ÷.÷: -≥ o.∞c. c¸. c¸cu
¯oe,es+ çrO. ÷ccO !.z ru Oc.uc o o¸:. c.
r.¸c :_ -≥ eu.Ou o.∞c. c¸. c¸cu ¯+,¯+¯ r
çrO. ÷ccO ¡o ru o¬ õc. o.∞c5 -çç ¸ccu
õO e.o5 -≥ ÷: ec._c ÷ç:. Ou -≥ o.∞c.
÷¸_rc c: ..O.ru ¸:_ c.. e::eOu o.∞c5
-≥ o.∞c. ÷¸¸rc c: Oc.ucr O.c:. rcu ¸ç.
eç.c o.c.r rc.r.cr5 ..u cr: r_ o.c .:
-≥ o.∞c. ÷ccO ¡¡.¡ ru O¸¬ õc. ce÷ OOç, e..Oc
c. o¸:Ω o.ucuO¸ .uç..c Oc.uc o.ucu .:
cçu5 Ou :.:c e..¬u¸.e5 -çç, cr: r_ o.c
.: -çç, u.c.çu -çç :. Oc.c :. .Ou e:.Oec._
÷Oc.u -çç ..u ¸ç o.∞c. o¬o. erec:
o::rc e¸÷ -¸c.u ¸ç. õe.. eO_ç c..¬
-çeçu :. e÷÷ -çeçu ¸ç o.∞ce.: ÷¸¸rc c:
Oc.ucr ecuoc. .: -¸r ¸.c c¸Oc¸5, c:c ÷:
O.◊: O..c.cO¸ ¸.c :. ¸.c.. c¸Oc¸5 o¬o.
e::eOu -≥ eu.Ou o.∞c. ÷ccO ¡o.o ru o¬ õc.
¯ O.O > o.o. ç.∞cO r.occ..rcc c.rocrc (or c,c)
o,.ò_cr
çcroc 2012 2013 Oo.rc (`)
-≥ ç.∞co 678,105 706,683 4.2
ç.∞cO -≥ 135,238 154,709 14.4
cçcc c˙c¬.orc or cçrO O -≥ 187,453 197,245 5.2
cr:r_ o.c .: -≥ 82,675 91,855 11.1
u.c.çu -≥ 87,124 89,829 3.1
:.:c e..¬u¸.e5 -≥ 17,654 15,561 (11.9)
ç.rcr or cçrO O -≥ 336,518 332,100 (1.3)
ec. -≥ 59,552 58,554 (1.7)
cr: r_ o.c .: -≥ 89,081 84,989 (4.6)
:.:c e..¬u¸.e5 -≥ 12,049 11,128 (7.6)
Oc.c :. .Ou e:.Oec._ ÷Oc.u -≥ 51,002 42,962 (15.8)
õe.. eO_j c..¬ -≥ 24,392 33,681 38.1
u.c.çu -≥ 76,887 74,387 (3.3)
e÷÷ 23,555 26,399 12.1
-¸c: ..÷: ÷: oeur: 18,896 22,630 19.8
-≥ cr.Or ç.∞co 81,810 73,535 (10.1)
oΩ -≥ ç.∞co 759,915 780,218 2.7
.¸..c · c..¬...c e.e:c5 eçc.c:e5u:O ÷: c.:. .¸. c:c:: eçc.c:e5u:O
38 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
orr r¿ ç.c or -≥
zo¡+ Oc.ec .¸ ..÷ º :_ cr: r_ o.c
.: .ç. -≥ c...c zo¡z Oc.ec ouc,c r.¸
c˙ce√çcO ÷.ecr.O c¸. c¸cu ¡¯e,s!¯ r çrO.
÷ccO +.o ru O¸¬ o o¸:. r.c:.c c˙O¸O. c¸.
c¸cu ¯oo O O¬. O¸¬ e:.. :. ÷¸¸c eO_∞5
÷ç:. cr: r_ o.c .: -≥ c¸uo., eç.c
o.ucu :. õr”5, eOu: u.c.çu c..¬O¸u
¸ç cr: r_ o.c .: -≥ o.∞c. O¸¬o., O.◊:
-¸r, o.:.c ¸O., r¸ ÷uurrc, r¸-≥ :.
eOu: .¸. .ueçuO¸u ¸ç cr: r_ o.c
.: -≥ o.∞c. O¸¬o. e::eOu eç.c o.c.r
rOc:O¸u ¸ç c.o.-. o.∞c. c¸. c¸cu º¡,s¯¯
çrO. ÷ccO ¡¡.o r c:.:cru r¸c eceuu
e¸÷ O¸¬ o o¸:. ere÷ eO::, eO_ç e..c
cΩ¸ o.O c_c.r O.ecu zo¡z ç :≥uO. ≥u
c:c:: rc...c. e::eOu o.ucu o¬ o.
c_-. rccu o.ucuO¸u ¸ç c.o.-. o.∞c.
c¸. c¸cu s!,ºsº çrO. ÷ccO !.e ru o¬ o o¸:.
÷c¸ rcu ¸ç cr: r_ o.c .:-≥ r.c :≥uO.
ç. e::eOu e.. r.¸c :_ cr: r_ o.c .:
-≥ o.c÷ e.o5 c¸. c¸cu +zz çrO. ÷ccO
s¯.¡ ru o¬ o o¸:.
ç.∞cO -≥
zo¡+ Oc.ec .¸ ..÷ uOc :_ o.∞c5 -≥ ..u
¸ç o.∞c., zo¡z Oc.ec o∞_ r.¸ c˙ce√çcO
÷.ecr.O c¸. c¸cu ¡¯!,¯oº r çrO. ÷ccO ¡!.!
r Oc.ucr ecuu5 rc o¸:. o.c.r e÷O. ..÷:
÷ccO e!.¡ ru c:_ .c ç ÷÷..c: :. ÷÷..c:
eu.Ou o.∞c5 -≥ ÷ccO ¡¯.º ru ç ¸ccu õO
e.o5 -≥ ÷ccO z¯.º ru ç ec._ .: -≥ ÷ccO
+¡ ru ç O¸¬ o. o.∞c5 -≥ o.∞c. ¸:_ Oc.uc
÷ç:. e:: o o¸:. zo¡z Oc.ec ouc,c r.¸
c˙ce√çcO ÷.ecr.O c¸. c¸cu e¡,e¯º r O
÷÷..c: :. ÷÷..c: eu.Ou o.∞c5 -≥ o.∞c.
zo¡+ Oc.ec :uO.˙ - ÷¸c:¸5-c r.¸c :_ ç
÷ccO ¡¯.º ru cu5 c¸. c¸cu ¯¡,z¯! r çrO.
Oc.uc o.r ecuu5 rc o¸:. zo¡+ ocO¸ecu
¸-. ≥u õõ. O -≥ uç:÷ rô5 ÷: -≥ ÷:u
...ec OOç O.◊: -¸r, .¸. o.c:u :. cr..,
≥5er._ :. .:c¸u o.ucu :. ocucu eO_∞.
÷: u.c.çu o. e.. Oc.uc ÷ç:.
∞cr o o¸:.
O¸Oc ¸:_ c.., ÷: ÷D.cr, ¸†rô5, .Ou e÷O.
÷: -¸r o.ç ¸:_ o.∞c5 ¸-u O·::c e÷O.O¸
e÷O. ucr:c O¸¬ o. e::eOu zo¡z Oc.ec
o∞_ r.¸ c˙ce√çcO ÷.ecr.O e.. O÷ec
¸ccu õO e.o5 -≥ c¸. c¸cu ¡!,z!¯ r çrO.
Oc.uc o o¸:. :Oç, c.:. o.ec e÷Orcu ç
¸ccu õO e.o5 -≥ cO:O o¸:_: rô. e..
o.ec Oc.ucO .u.:.rO -¸c. o¸:.
zo¡z Oc.ec o∞_ r.¸ c˙ce√çec c¸. c¸cu
!º,z¯¯ r O ec._ .: -≥ o.∞c. e.. O÷ec
ouc,c r.¸ c˙ce√çc :_ c¸. c¸cu e!,¯¡¯ r
õc. e.. Oc.uc ¸eç÷. -≥ cçu. cΩ¸ o.,
ec._ ouc.: ¸:_ c.., c..¬...c -¸≥5rc :.
-¸c: ur: rô. c..u O.ecu e:: o o¸:.

zo¡z Oc.ec o∞_ r.¸ c˙ce√çec ç c¸. c¸cu
¡+,ooe r O o.c.r e÷O. ..÷:O¸u ¸ç o.∞c.
zo¡+ Oc.ec c_. ..÷ uOc :_ c¸. c¸cu !,e¯! r
çrO. o¬ O o:c ¸.cc .: o.∞c5 -≥ e.o.O cO:
1u,. O..c.ccr o.∞c. o.c.r e÷O. ..÷: O¸u
uç:÷ rô. ÷: o.c.r e÷O. ..÷:OO cO: ÷..O
r.c:OrO c¸. c¸cu ¯o çrO. O¸¬ rô. e5 ÷ç:.
e:: o o¸:. ere÷ OO ç o.ucu :. ocucu,
u.c.çu, ¸†rô5 cu.ç o. o.c.r e÷O. ..÷:
o.∞c. erec: .u.:.rO ∞cr o o¸:.
e O.O > ç.∞cO -≥ r.occ..rc (or c,c zcI+)
o,.ò_cr
-≥ cçro 2012 2013 Oo.rc (`)
÷÷..c: :. ÷÷..c: eu.Ou 61,659 71,273 15.9
¸ccuõO e.o5 11,318 14,245 25.9
o.c.r e÷O. ..÷: 13,006 4,674 (64.1)
ec.¸c .: cjO. .¸ue5 -≥ 49,255 64,515 31.0
cr:O 135,238 154,709 14.4
.¸..c· c.:. .¸. c:c:: eçc.c:e5u:O
39 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
roc.çr -≥ c. co. -≥
u.c.çu -≥ :. ÷c. -≥ ..u zo¡+ Oc.ec :uO.˙
÷O ÷¸c:¸5-c çrO. r.¸c :_ ¸ç o.∞c. zo¡z
O÷ec c. r.¸c :_ O.c:. r_ o.∞c.O ÷.ecr.O
o.u:r O¸¬o.r ecuOcu c¸. c¸cu ¡e!,z¡e
r õc. c÷.c O÷cO¸ e.u. e.. r.¸c :_ ç
.:c¸u, ≥5O¸5, e..Oc c. :. -u: e:¸ u.c.çu,
u.c.çu -≥ ÷: ÷c. -≥O¸ c..u o.∞c5 ..c. õc.
≥5O¸5 ÷: .:c¸u oe¸õec Oc.uc o¬ o. ÷:
e..Oc c. :. c.˙ec..r c..¬O¸ o.ucuc o¬
o. ccu ¸ç -≥ o.∞ce.: Oc.u eo.c o¬ o.O
e:: õc. zo¡z eu.O¸5-c .÷ ç :. zo¡+ :¸ .÷ ç
u.c.çu :. ÷c. -≥ ouc.:cu O¸¬ rô. e...u
¸ç o.∞c. ...÷. ..O.r cO:O. .¸u.O
÷:.c õc.
e..Oc c. o.ucuc ..u ¸ç o.∞c. zo¡z Oc.ec
r.¸÷..O :. ÷¸÷çe5 ç ÷ccO +.e c:.:cru o¬
o.r ecuOcu c¸. c¸cu e¡,oe¡ r õc. e..Oc
c. o.ucuc c÷.c O÷cO ÷.ecr.O ÷ccO zo
r c:.:cru o¬ o. ¸:: :::OcO e:: õc.
zo¡+ Oc.ec c_. ..÷ uOcr r.¸c :_ -u:
e:¸ o..: u.c.çuO¸u ¸ç u.c.çu -≥ o.∞c.
c¸. c¸cu ¡+,+ze r O o:c c. u.c.çu ÷..÷::
o.cru c..r O¸¬o.O :¸ õ≥¸ :uuc O¸¬ o.
e::o o¸:.
zo¡+ Oc.ec c_. ..÷ º :_ ≥5O¸5 :_u ¸ç
u.c.çu -≥ o.∞c. c¸. c¸cu !¡,ºe¯ r O o:c cc
c÷.c O÷cO ÷.ecr.O ÷ccO ¯.! ru O¸¬ o.r.
e.. r.¸c :_ ≥5O¸5 u.c.çuc ÷ccO z.s ru
o¬ o o¸:. ce÷ OO: zo¡z :re:.-c .÷ ç ÷:
zo¡+ :¸ .÷ ç ÷≥ rcu ¸ç u.c.çu -≥ ouc.:cu
O¸¬ rô. e.. u.c.çu -≥ o.∞c. O¸¬ o.O
e:: õc.
zo¡z O÷ec .¸ ..÷ º :. ÷¸÷çe5 ç zo¡+ Oc.ec c.
r.¸c :_ ÷ccO +.¯ r c:.:cru O¸¬o.r ÷::O
.:c¸uO¸u ¸ç ÷c.-≥ o.∞c.
c¸. c¸cu !e,o¯¯ r õc. c..u O.ecu ÷¸c .:c¸u
u.c.çuc ÷ccO ¡+.! ru o¬ OOç c÷.c O÷cO O¬.
÷ccO +.s r Oc.ucr ÷::O c¸. c¸cu +¯,+!º r
c..u ¸-.e.u o¸:. ..u. .:c¸u (-cc) u.c.çuc
zo¡+ c_. ..÷ oº :_ ÷ccO ¡º.¡ ru O¸¬ õc. zo¡z
:re:.-c .÷ ç ÷: zo¡+ :¸ .÷ ç ÷c. -≥ ouc.:cu
O¸¬ rô. ç e.. Oc.ucO e:: õc. .:c¸u :.
≥5O¸5 c˙ec.:uc oO. rô. :. ¸uO: rôe5
O¸¬÷O:u rc.:.r rô5 c..u O.ecu .:c¸u :.
≥5O¸5 oe¸õc o¬o.O -¸c. o¸:.
rEm igyk 5 > ksIamdok n≥$iqrdn≥ wd∞hfï ldrahidOkh
^ck'-iema'&
0
10000
20000
30000
40000
50000
60000
70000
u;ameka ≥ïjeá iy
≥ïfld<
fudagr® r:
jdyk
Lksc f;,a wfkl=;a
2012 2013
r
e
'

ñ
,
sh
k
¯ O.O > orr r¿ ç.c or -≥ r.occ..rc (orc,c)
o,.ò_cr
-≥ cçro 2012 2013 Oo.rc (%)
c.o.-. - eç.c 83,173 91,932 10.5
c.o.-. - o.ucu 91,073 85,235 -6.4
ç_ c.o.-. o.∞c. 174,246 177,168 1.7
c.o.-. o.c÷ e.O5 2,490 322 -87.1
c.o.-.- .ç. o.∞c. 171,756 176,845 3.0
o.c÷ e.O5 ç_ o.∞ce5 ` e¸÷ 1.4 0.2
.¸..c· c.:. .¸. c:c:: eçc.c:e5u:O
40 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
s O.O > roc.çr -≥ co.-≥ ç.∞cO r.occ..rc (or c,c)
o,. ò_cr
-≥ cçro 2012 2013 Oo.rc (`)
.:c¸u 44,520 46,075 3.5
≥5O¸5≥5er._ 39,804 41,965 5.4
e..Oc O.:u 63,335 61,061 -3.6
-u: e:¸ u.c.çu 13,522 13,326 -1.4
oeur: 2,799 1,789 -36.1
cr:O 163,981 164,216 0.1
.¸..c · c.:. .¸. c:c:: eçc.c:e5u:O
º O.O > ≥OO,õ or roc.çr -≥ c.cc..rcr ≥OO,õ 'ccco,.
Oo.c 2010
or
2010
cr
2010
cr.O,
2011
or
2011
cr
2012
o.o
2012
cr
%
zccº
o.or cO
zcIz cr.
çrO.
2013
o_
≥5O¸5 crr †. 2,830 3,425 3,440 3,465 3,465 4,037 4,612 101.50% 5,722
c.c. eo eu.¸r.Ou
(¸∞. CAPSTAN,THREE
ROSES)
≥5O¸5 crr †. c.c. eo 6,246 6,893 6,922 6,973 7,540 8,112 9,258 62.30% 10,355
¸r.Ou ce:: c.c. e¯
eu.¸r.Ou
(¸∞. FOUR ACES)
≥5O¸5 crr †. c.c. e¯ 9,028 9,720 9,751 9,811 10,381 10,953 12,100 42.60% 12,100
¸r.Ou ce:: c.c. ¯z
eu.¸r.Ou
(¸∞. PALL MALL)
≥5O¸5 crr †. c.c. ¯z 11,260 11,988 12,030 12,108 13,243 13,815 14,963 39.60% 16,610
¸r.Ou ce:: c.c. s!
eu.¸r.Ou
(¸∞. GOLD LEAF)
≥5O¸5 crr †. c.c. s! 13,170 14,360 14,400 15,000 16,400 17,100 18,500 52.00% 20,000
¸r.Ou
.¸..c · c.:. .¸. c:c:: eçc.c:e5u:O
41 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ç.rcr -≥
o.ucu -≥ o.∞c. zo¡+ .¸ ..÷ º :_ c¸. c¸cu
¯s,¯¯! r O o:c, zo¡z Oc.ec o∞_ r.¸c :_
d÷ r_ c¸. c¸cu ¯º,¯¯z :. ÷¸÷çe5 ç ÷ccO
¡.¯ c.. o¬ o.r ecuu5 erec. ou:c c..¬
o.ucuc ÷: o.ec.:u c..¬ o.ucuc c:_
c..: c.˙ec..r c..¬ o.ucuc ÷ccO ¡.s ru
c..r Oc.uc o. u÷. O -¸c,. cu ecuu5
erec. cO o.:cO e..Oc c. O.:u o.ucuc o¬
o., :.., ec.e:.c, ec†c_ cu.ç o.ucu -≥
uç:÷ c..¬ o.ucuc, . ¸r.O õ÷u ¸u†c.O
:. cr÷..uc ÷.. c_7 o¸: çõc.c.õr :.
r¸.cc uç:÷ eO_ç .õ÷5 cOe: e.cOO c..¬
o.ucuc rô. ÷: o.ec.:u .õ÷5 cOe: o.ucu
-≥ uç:÷ cOe: c..¬ o.ucuc rô. e..
o.ucu -≥ o.∞c. c:_ c..O -¸c.u ¸ç. ere÷
OOç, eç.c r˙c5 u.c.çuc Oc.uc rôe5
oc.◊u o.ucur r˙c5 ÷ç:. O -≥ ÷:u o¬
rô., ≥5er._ ÷ç:. Ou o.ucu -≥, -cc, .ç.÷.c
÷: ≥5O¸5 ÷ç:. Ou o.ucu -≥ ¸:_ ¸c. e..
o.ucu -≥ o.∞c. erec: .u.:.rO -¸c.u ¸ç.
õcco cO¿ç ¬.<. -çç
e:.c..: eO_ç c..¬ .: cuO. o¸: :u -ççr
Ou õe.. eOe_ç c..¬ -çç ..u zo¡z Oc.ec
.¸ ..÷ º :_ ¸ç c¸. c¸cu z!,+ºz r o.∞c.O
÷.ecr.O zo¡+ c. r.¸c :_ ¸ç o.∞c.
c¸. c¸cu ++,es¡ r õc. õe.. eO_ç c..¬ -çç
o∞_ Ou c..¬ c...c ¸:_ u¸o. ÷: eç.c
r·.rc..u:c o.cr.. rc .¸u.O r.¸.uc,cO
õe.. eO_ç c..¬ -≥ ouc.:cu ÷e...uc
rô. e.. r.¸c :_ o.∞c. ¸:_ c,.O ¸cr.ô
õc. c_OΩ e:¸, ÷u, e¸.r Ω,., .c÷c c˙cc .:
cuOu ¸ç õe.. c..¬ -çç e.. o.∞c.
d÷ rô.O .u.:.rO -¸c.u ¸ç. ere÷ OOç,
oc:.c¸, e¸.r Ω,. cu.ç eç.c u.c.çucue.
Oc.uc e::eOu e.. c..¬ o.ucuc ÷.. o.
u÷. ¸u ¸ç o.∞c. o¬ õc. o÷O¸uu eu¸u r.¸
÷..Ou: ç, eç.c e..õc.O ¸.c ¸cçOu c¸r
¸-. çe.u eç.c e..õc. o.cr.. rô.O õe..
eO_ç c..¬ -≥ c¸uo.:, eç.c o÷O¸uu eu..¸:
r.¸cu : ç c..¬O¸ c.˙ec..r c¸ ÷..cO
cO:O. .¸u.O oO.. eOu÷r5 ÷≥ rô.: rcu ¸ç.
¡o O.O > co.Oo oO O.cr ç.rcr cc rO _c.c†.o rôO (or c,c)
orrc c.-..O
çcroc ç.rcr rO _c.c†.o rôo
2012 2013 cOrc % 2012 2013 cOrc %
-÷ c. 2,812 1,073 (1,739) -67 2,645 1,341 (1,304) -49
e..Oc c. 19,784 21,028 1,244 6 26,890 20,450 (6,440) -24
:ec.ç c. 69,527 66,862 (2,665) -4 74,853 64,459 (10,394) -14
c:c¸ c¸† 138,484 114,109 (24,375) -18 154,713 124,091 (30,662) -20
c..¬ cO.:u c. 43,240 20,312 (22,928) -53 39,872 23,739 (16,133) -40
¸¬5 O.:u 17,857 11,434 (6,423) -36 16,929 9,692 (7,237) -43
oeur: 808 616 (192) -24 918 589 (329) -36
orrO 292,512 235,434 (57,078) -20 316,820 244,361 (72,459) -23
.¸..c · e..Oc c. cO.:u eçc.c:e5u:O ÷: ec. eçc.c:e5u:O
¡¡ O.O > c..r rçcc cO¿ç .õcO çrO _-. cçr _ç ro, -≥ ccr cOcr ç.rcrc ror _ç
¬.<.O_ Oõr.ro (orc,c.zcI+)
rçcc cO¿q .õco ro,-≥ ccr cqc. cOrOr
roc.çr c.-..O
ç.rcr
(o,.ò_cr)
¸u†c. - . ¸r. uç:÷ eO_j .õ÷. (ÌSFTA) 4,635 36,548
c.r÷..u - . ¸r. uç:÷ eO_j .õ÷. (PSFTA) 5,477 12,500
çr. o.÷c. uç:÷ eO_j .õ÷. (SAFTA) 3,054 220
o.÷c. - ..u:rc eO_j .õ÷. (APTA) 499 1,228
orrO 13,665 50,496
.¸..c · ec. eçc.c:e5u:O ÷: eO_j :. o.ec.:u c:c:: eçc.c:e5u:O
42 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
¡z O.O > õcco cO¿ç ¬.<. -≥ çrc.r
r..,ocO o,.
çcroc zcIz c,crO-o çOc.rcO zcI+ c,crO-o çOc.rcO
:.¸.¸÷÷u 10 10
o¸ 50 40
c: Ω,. 25 15
--Ω,. 50 35
÷≥ Ω,. 40 40
OO.u. - ÷5cc. 20 20
OO.u. - cc_ r_ 25 25
r¬¸ - ÷5cc. 10 10
r¬¸ - cc_ r_ 15 15
. o¸O 100 100
c˙cc -÷5cc. 18 18
c˙cc -cc_ r_ 22 22
c˙÷ -r¬ eu.r_ 25 25
c˙÷ -r¬ r_ 40 150
5u ..Ω 75 100
÷u 20 27
¸≥ 100 110
rOc 100 100
rcrru 100 100
:.:.¸ 100 100
¸5-¸r¬ 250 275
rcO¸ 75 75
e∞¬5 60 60
c† 120 130
o¸c¸ 45 45
er.::.¸¸-eu.o¸.c,, r¬ eu.r_ 45 45
er.::.¸¸-o¸.c, e:. r¬ r_ 90 200
÷≥c¸ 150 160
.:≥c¸ 50 50
r:-eu.o¸.c, ÷: r¬ eu.r_ 200 200
r: oeur: 300 500
¸Ω:.¸ 50 50
rcrru c5 150 150
¸∫ c5 200 200
cOr: 100 110
o- o¸O 50 60
c.5 e:¸ c˙c:≥ eu.r_-c¸. 80 c˙c:≥ eu.r_-c¸ . 80
c˙c:≥ r_-c¸. 90 c˙c:≥ r_-c¸. 110
..Ω ¡o` e:. r..,. ¡, c¸. ¡o cu
o.cue.u O¸¬
¡o` e:. r..,. ¡ O c¸. ¡o cu
o.cue.u O¸¬
eO_ç :. o.ec.:u c:c:: eçc.c:e5u:O õ÷u ÷r÷u ¸ç.
43 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o.rc c...r,.cO -çç
c_.: ÷c. eO: ..c¸ rcu ¸ç c...ec: o¬ o.
eç.c e.u. o.ucu .: O ÷.÷: :.:c
e..¬u¸.e5 -≥ o.∞ce.: o¬ o. c_-. rcc.
cO o.:cO e..Oc c. O.:u ¸c.c†c rôe5 ..÷:
o.∞ccu ÷ccO ¯o r cu5 c¸. c¸cu ¡,¡!¯ r ÷:
.ççc -çç :_u ¸ç ÷5cc. o.∞c. Ou c¸. c¸cu
!,e¯z r e.. O÷ec .¸ ..÷ º :_ ÷c cOc. ç o¸:
rOc: ¸Orô.O ÷:.c o. c◊÷ c_.: ÷c. eO:
..c¸ rcu ¸ç.
õ≥_ c.cçc -çç
õ≥¸ ÷eç. e÷O. .: cuO. :- õõ. Or -≥ eOuOO
zo¡¡ or ¡¡ çcu õ≥¸ ÷eç. -≥ cu: cOe: :≥uO.
≥u õ≥¸ ÷eç. -çç ..u e.. Oc.ec .¸ ..÷ º
:_ ¸ç o.∞c. ÷ccO º.! ru Oc.uc õc. cu5
zo¡z Oc.ec c. r.¸c :_ c¸. c¸cu ¡e,¯¯z r O c.
o.∞c. zo¡+ Oc.ec ç c¸. c¸cu ¡s,¡+! r õc. õ≥¸
÷eç. o.ec c.õ:. rcu ¸-u cue:.crc. ÷:
o. :.r.◊r ¸crc. o.ucuc ÷: c¸ ç .¸u.
÷ç:. O cr: r_ o.c .: -≥ uç:÷ rô. e::eOu
e.. o.c :_ o.ec.:u r¸c eceuu e¸÷ Oc.uc
õc. u¸e.u:c :. ¸:c¸ c_.: :_ õ≥¸ ÷eç.
e÷O.eo o-.¬ O..c:c ÷: ç:: ÷5ec..c ÷ç:.
o¸: ¸:_ ¸¸g. e.. Oc.ucO ¸O:¸ õc.
÷Ω :. ... c˙... O..c.c †˙.¸uoe5 oc.◊u
:.:c e..¬u¸.e5 -çeçu (:..e...-.) uç:÷ ÷..O
1u,. O..c.c rOc::r ÷ç:. r.c:OrO c¸cc¸
c¸cu + r e:. O÷crO c¸cc¸ c¸cu ¡z r çrO.
O¸¬ rô. ÷: uç:÷ rô5 e::eOu eç.c o.c.r
rOc: :_u ¸ç :.:c e..¬u¸.e5 -≥ o.∞c. ÷ccO
¡z ru c¸cc¸ c¸cu ¡¯,¯e¡ r çrO. c:: O¸O◊.
ere÷ eO::, eç.c u.c.çu o.ec cu5 o.:.c,
÷÷¸ -., c-c u.c.çu ÷: e÷O. ÷¸cc5 o. cu5
r¸, o.cr.r ÷: c˙÷≥ rôe5 ÷: o...cu e÷O.
÷: ÷D.cr rc..u:ec c-ç.: ÷.. Oc.uc O
e:.O¸, oOu:¸, o.:.c c.u ÷¸cc. ÷: :.u.c5
o.cu :_u eç.c O.ecu ¸ç :.:c e..¬u¸.e5
-≥ o.∞ce.: Oc.ucr O.c:. õc. ce.u. e..Oc
c. O.:u, .·: ¸crc., c÷.cur u.c.çu, :˙. :.
-¬¸˙. o.ucucue. ÷≥ O ÷er.Duc o.ucu .:
c. -çç zo¡z Oc.ec .¸ ..÷ º :_ O.c:. r_
c¸. c¸cu ¡z,o!º e.. Oc.ec ç c¸. c¸cu ¡¡,¡zs
çrO. o¬ o.O e:: õc.
-≥ r.c ÷c¸ rôe5 oc.◊u zo¡¡ Oc.ec ç :≥uO.
≥u o.∞c5 e-∞ :¸ôe5 r.eoçc cOe: e..
r.¸c˙ce√çc :_ ¸ç .Ω :.:c e..¬u¸.e5 -≥
o.∞c. Ou c¸.c¸cu !o,o+! u ¡+ r cu5,
c¸. c¸cu ¡+,+!¯ r c_.: ÷c. eO: ..c¸ rcu ¸ç.
O.O ¡+ > o.c...-., oçço -≥ cc co.Oo oO O.cr _c.c†.o rôcO ..cr r.occ..rc (or.c,c.)
o,. ò_cr
2012 2013 (r.Or._r) % cOrc - 2013/2012
çcroc o..o
ooc
c¿.r
c¬.
orrO o..o
ooc
c¿.r
c¬.
orrO o..o
ooc
c¿.r
c¬.
orrO
:.:c e..¬u¸.e5
-≥ *
29,703 14,852 44,555 26,689 13,345 40,034 -10 -10 -10
eç.c 17,654 8,827 26,481 15,561 7,781 23,342 -12 -12 -12
o.ucu 12,049 6,025 18,074 11,128 5,564 16,692 -8 -8 -8
.ççc -≥** - 5,277 5,277 - 4,672 4,672 - -11 -11
e..Oc c. ¸c.c†c
rôe5 ..÷: ***
583 1,359 1,942 490 1,145 1,635 -16 -16 -16
orrO 30,286 21,488 51,774 27,179 19,162 46,341 -10 -11 -10
.¸..c· .ç¸ er.c÷. ÷: c.:. .¸. c:c:: eçc.c:e5u:O
¯ zo¡¡ O÷ec ÷O :.:c e..¬u¸.e5 -≥ o.∞ce.u ÷ccO ++ ¡+ r .... c:c õ÷u c_.: ÷c. eO: ..c¸ rcu ¸¸e¬
¯¯ zo¡¡ O÷ec ÷O .ççc -≥ o.∞c. ..u ¸c¸c ÷5cc. o.∞c. .... c:c õ÷u c_.: ÷c. eO: ..c¸ rcu ¸¸e¬
¯¯¯ e..Oc c. ¸c.cçc rôe5 ..÷:O¸u .... c:c õ÷u ¸c¸c o.∞ce.u c_.: ÷c.O¸O ..c¸ rcu ¸ç ÷ccO ¯o O
o∞_ ÷-.. ¸reo
44 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
çcrrr -≥
zo¡+ Oc.ec .¸ ..÷ º :_ c..¬ o.ucu .: cuOu
¸-u Oc.c :. .Ou e:.Oc_ ÷Oc.u -çç :_u
¸ç o.∞c. zo¡z Oc.c :. ÷¸÷çe5 ç ÷ccO ¡¯.s ru
cu5 c¸. c¸cu !z,ºez r çrO. r¸c eceuu e¸÷
o¬ õc. e5 ÷ç:. c..u O.ecu -¸c.u ¸çeç ÷.÷:
o.ucuO¸ c:: O¸.. Ou o:c c: ç ou:c c..¬
o.ucuc ÷: e..Oc c. O.:u ç o¸:ΩO c˙ec.:u
c..¬ o.ucuc c:: O¸.. r¸c ec.u.
e.. r.¸c˙ce√çc :_ o.ucu .: oc rcu ¸-u
e÷÷ -≥ o.∞c. c¸. c¸cu z!,¡¡+ r çrO. ÷ccO ¡+.s
ru O¸¬ O o:c e5 ÷ç:. c..u O.ecu zo¡z Oc.c
oO÷.uec e:.c..: o.ucu ÷ç:. e÷÷ -çç c¸uo.
÷: ÷e.u:, c.u .e¬.¸, cr¬ ÷: O.eu ÷ç:.
¸†rô5 re.:ec Oc.uc: ÷.. o¸: O ¸¸ge5
O¸¬ o. e:: õc. ere÷ eO::, rc¸≥, rc.- u¸5 :.
÷Oc.õr -u: ¸O. o.ucuec ç o∞_ Ou e÷÷ -çç
zo¡z eç÷¸5-c ..÷ec ç ¸:_ uOu ¸¸-O ç ¸¸g.
o¬o. e::eOu o. ¸O. O.ecu rcu ¸-u ocucu
.: c¸uO e÷÷ -≥ o.∞c. ÷ccO z.º ru c¸. c¸cu
z,zse r çrO. o¬ õc. e5 ouO, ec.e:.c ÷:u...cc
÷: O.◊: ec.. ÷:u...cc ÷ç:. oc.ç¸ ¸-. ç.
:_u r·.rc..u:ec ÷Oc.uc ¸eç÷. .r:cr
eOcu eç.c o.c cr: rcu rc..u: cOc.uc
oc.. rc .ucu e:.c..: o.ucu ÷: ocucu
c..¬ .: cuO. o¸: e÷÷ -çç :_u zo¡+ c_. ..÷
uOc :_ ¸ç o.∞c. ÷ccO ¡z r Oc.ucr ecuu5
rccu c¸. c¸cu ze,+ºº r õc.
-≥ cr.Or ç.∞co
÷.÷: -≥ eu.Ou o.∞c. c÷.c Oc.ec .¸ ..÷
º :. ÷¸÷çe5 ç ÷ccO ¡o ru, cu5 zo¡z Oc.ec
c¸. c¸cu s¡,sos ÷O zo¡+ Oc.ec c¸. c¸cu ¯+,¯+¯
r çrO. o¬ õc. zo¡z Oc.ec c¸. c¸cu z!,¡¯º r O
¸.c ÷: ¸.c.. ¸¸-5 zo¡+ Oc.ec c¸. c¸cu ¡¯,º¡º
çrO. ÷ccO z¯.s ru o¬ O o:c . ¸r. .: -¸reo
¸.c c¸Oô5 c¸. c¸cu ¡!,+¯o r çrO. ÷ccO !+ ru
c:: O¸.. -≥ eu.Ou o.∞ce.: o¬ o.O c..u
O.ecu e:: õc. ere÷ u.:, zo¡z Oc.ec o∞_
r.¸c˙ce√çc :. ÷¸÷çe5 ç õr.5 ÷: oc rô5
÷ccO !¯ ru c¸. c¸cu z¡,º!o r çrO. O¸¬ õc.
45 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O ¡! > o.o. ç.∞cO õo_r. õcc_o<c (orO.˙c,cr,O-o)
o,. -_cr
çcroc 2012 2013
ç,cr.
2013
r.O.
-_c.r _ç ro,<
o.∞c5 -≥ 135.2 159.0 154.7 O.◊: -¸r, ÷D.cr O..c.c, ¸†rô5, e:.c:c¸ :.r.. o.ec ÷:
O·::c e÷O. o.†ec: ¸:_ O¸Oc ¸-u :u:c¸O¸ drc. oO÷.. ¸:_
c..:, e÷O. ∞cr our¸:Oc Oc.uc o. ÷: c:ec e÷Orcue.
∞cr:Oc ç o¸:_: oe.u ¸ccu õO e.o5 -≥ o.∞ce.: r¸c
eceuu Oc.ucr o¸: õc. -≥ cçu. cΩ¸ o., c..¬...c -¸≥5rc
÷: c..¬...c -¸c: ur: rô. ÷: ¸:_ ec._ ouc.: e::eOu
ec._c .: -≥ o.∞c., o.∞c5 -≥ o.∞c. ¸:_ c..O ∞cr õc.
cr: r_ o.c
.: -≥
171.8 205.2 176.9 r.c:.c c˙O¸O. c¸. c¸cu ¯oo O O¬. O¸¬ e:.. ÷: ÷¸¸c eO_∞.
÷ç:. c.o.-. c¸uo., e:.O¸, o.cu..¸. ÷: o.:.c ÷ccu e÷O. O¸u
o.O¸ ¸:_ r.cc÷..uc ÷: ÷c¸ rcu ¸ç cr: r_ o.c .:
-≥ r.c e::eOu c.o.-. -≥ .ç¸ o.c÷ e.o5 o¬ o. o.ç rc¸.
eç.c c.o.-. o.∞c. O¸¬ o.O e:: õc. ere÷ eO::, eO_ç e..c
cΩ¸ o.O c_c.r O.ecu :≥uO. ≥u c:c::.c rc...c., ¸:_
u.c.çu -≥, .c c÷.c.c ÷ç:. O ÷..Ou ÷: õu.c ouc.: c:_
c.. o.ucu erec: o::rc e¸÷ -¸c,e.u o.ucu .: c.o.-.
o.∞c. c:_ c.. e::eOu o¸÷:e5u: o.∞c.O O¬. c.o.-. o.∞c.
o¬ õc.
u.c.çu -≥ 164.0 197.0 164.2 zo¡+ Oc.ec .:c¸u ÷: ≥5O¸5 u.c.çuc c:: O¸O. ç c .:
u.c.çu -≥ ¸:_ ¸c. u.c.çu -≥ o.∞c. ¸:_ c..O ¸O:¸ õc.
ere÷ eO::, e..Oc c. O.:u o.ucuc .: u.c.çu -≥ ¸:_
¸ce.u ÷cg. Oc.ec e..Oc c. o.ucuc c:: O¸.. ÷: õu.c
ouc.: c:_ c.. e.. o.∞c. erec: o::rc e¸÷ -¸c.u ¸ç.
o.ucu -≥ 59.6 74.5 58.6 e.. -ççO cO: Ou c..¬ o.ucuc c:_ c.. e.. o.∞c. erec:
o::rc e¸÷ -¸c.u ¸ç. ere÷ eO::, eç.c r˙c5 u.c.çuc
cOc.uc rôe5 oc.◊u o.ucur r˙c5 ÷ç:. O -≥ ÷:u o¬
rô., ≥5er._ ÷ç:. Ou o.ucu -≥, -cc, .ç.÷.c ÷: ≥5O¸5 ÷ç:.
Ou o.ucu -≥ ¸:_ ¸c.: e.. o.ucu -≥ o.∞c. ¸:_ c..O
.u.:.rO -¸c.u ¸ç.
Oc.c :. .Ou
e:.Oc_
÷Oc.u -≥
51.0 69.1 43.0 o¸÷:e5u: o.∞c.O O¬. Oc.c :. .Ou e:.Oc_ ÷Oc.u -≥
o.∞c. c:_ c..O c..u O.ecu, õe..ecu. zo¡+ O÷ec .¸
c..ec ç, o.ucu c:_ c.. e:: õc.
:.:c
e..¬u¸.e5
-≥ (:..e...-.)
29.7 44.6 26.7 eç.c u.c.çu rc..u:O¸ .uç..c Oc.uc ÷: o.ucuO¸
÷er.Duc :.:c e..¬u¸.e5 -≥ o.∞c. o¬ o.O e:: õc. ÷Ω :.
... c˙... O..c.c †˙ .¸uoe5 oc.◊u :.:c e..¬u¸.e5 -≥
uç:÷ ÷..O zo¡+ :uO.˙ ¡ ∞ ÷O 1u,. O..c.˙r rOc::r ÷ç:.
c˙O¸O. r.c:OrO c¸. c¸cu + r e:. O÷crO c¸. c¸cu ¡z r çrO.
¸:_ ¸c. eç.c o.c.r rOc:O¸u ¸ç :..e...-. o.∞c. erec:
-¸c.u ¸ç.
oeur: -≥ 66.8 91.5 82.7 õe.. eO_ç c..¬ -çç o∞_ Ou c..¬ c...c ¸:_ u¸o. ÷:
eç.c u.c.çu rc.O¸ec: cO.:.Ocu .: õe.. eO_ç c..¬ -≥
ouc.:cu ÷e...uc rô. .: o.∞c. ¸:_ c.. ÷: õ≥¸÷ueç.
-≥ o.∞c. ¸:_ c.. oeur: -≥ o.∞c5 ¸:_ c..O ∞cr õc.
-≥ eu.Ou
o.∞c.
81.8 84.7 73.5 õr.5 ÷: oc rô5 ..u ¸ç o.∞c. ¸:_ .c ç . ¸r. .: -¸reo
¸.c c¸Oô5 c:_ c.. -≥ eu.Ou o.∞c. o¬ o.O c..u O.ecu
e:: õc.
orrO 759.9 925.6 780.2
c.:. .¸. c:c:: eçc.c:e5u:O õ÷u ÷r÷u ¸ç.
46 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O Iã > o.o. õcçO r.occ..rc (zcI+ orO.˙ cO c,cr,O-o çrO.)
o,. ò_cr
2012 2013
cro.Oorr õcçO 886,193 920,017
O¸Oc 257,421 290,720
õ... O¸Oc 84,555 91,458
ec._ e.o5 321,491 367,572
oeur: õcç5 222,726 170,267
c...r õcçO 371,244 355,068
orrO 1,257,437 1,275,085
c-c..r õcçO
÷...u. †_≥ :u er.O÷O¸ oO..:. ¸O rô.
oc.. rc .ucu o-.¬O cO:O.e.u cu
c:ec ÷-÷..u O¸¬÷O:u ..u zo¡+ Oc.ec
.¸ ..÷ º :_ c:ec ÷c÷..u ç.u. ÷ç:.
O õcç. c¸. c¸cu ¯¡,¯s+ r õc. zo¡+ Oc.ec
:uO.˙ ÷O ÷¸c:¸5-c çrO. O r.¸ c˙ce√çc
:_ õõ. o.∞c5 ..O5 :_ ÷5u cç.¸cu
÷ç:. ÷:ec..:.O ¸-. çe.u, õcc: cç.¸cuO
c∞ucu rôe.u ÷: ÷.·ç. c:¸.cu eOueOu
c¸. c¸cu ¡z,¯ez r O¸c rôe.u ecc Oc.ec
o∞_ r.¸ c˙ce√çec õcç.O O¬. ÷ccO eo.e
ru ÷-÷..u õcç5 O¸¬ rc o¸:. o.-..:
c.õc¸OuO, .c.cO c:O c.õc¸Oue.
cO¸O¸O ÷: c.õc¸Oue. eç..ccuO ¸-. ≥u
÷..: o.cr.. õcç5 c¸. c¸cu ¡z,sez r. cc
ecc Oc.ec o∞_ r.¸ ÷..O :_ O¸c r_ .ç¸O
O¬. ÷ccO ¡+.e r O¸¬ o.r. ce.u. e.. r.¸
c˙ce√çc :_ o.c∞ r_.u.rc. rOc: ÷ç:.
c:c õ÷u c¸.c¸cu ¡,!¯o r O¸c rc o¸:. :.:ec
e÷-. :::Oc ÷: ec... ..O. ¸:_ u¸oe5
O¸¬÷O:u o-.¬O rc.:.r O o:c e.. Oc.ec
.¸ ..÷ º :_ ç c ÷ç:. O õcç5 c¸. c¸cu
¡º,oºs r o o¸:. e5 cOe: ..:· :. _çc¸Ou d
r-¸. .¸ue5 O¸¬÷O:u ÷ç:. eu.ce¸ :..
¸-. ç. cOc.uc rô.O c¸. c¸cu ¡,!+o rç
:ec.. O¸¬÷O:u ÷ç:. c¸. c¸cu ºsº ÷: c.÷¸
o.:.c ec... O¸¬÷O:u ÷ç:. c¸. c¸cu ¡,º¯z
r ç O¸c rc o¸:. e.. r.¸ c˙ce√çc :_ e¸.r
o.:.c O¸¬÷O:u cOe: c¸. c¸cu ºez r e..
O¸¬÷O:u cOc.uc rô. ÷ç:. ¸-. ç o¸:.
c.÷¸ cu Oce÷ ÷cg. _.u ÷ç:. eu.c¸ec
o...cuc ¸-. ç. ÷cr.: rôe5 oc.◊u cr:O
c.÷¸ ec_ec.:, c.÷¸ u¸ o¸≥5, ec...∞c
o.:.c, O.c ceo.c:, ≥.rc:.O¸u ece_u ÷cg.
_.u ÷ç:. ÷c::, ......c ÷: eu.c¸ec ç:5
c.÷¸ ec_ec.: ¸-. †. ÷ç:. c:c õ÷u zo¡+ .¸
o.occ õcço
zo¡+ Oc.ec: .¸ ..÷ oº :_ .Ω c.:. õcç.
c¸. c¸cu ¡,z¯¯,os¯ r õc. ¸u c¸. c¸cu ºzo,o¡¯
r cuc.Oc:u õcç5 Ou o:c c¸. c¸cu +¯¯,oes
r c...u õcç5 eo. ecc Oc.ec c. r.¸c ÷..
÷u÷uçuc rôe5 ç e.. O÷ec cuc.Oc:u õcç5
÷ccO +.s ru ¸:_ e..÷ o¸: o:c c...u õcç5
÷ccO !.! ru o¬ o o¸:.
O,Oc c. õc.o O,Oc
zo¡+ Oc.ec .¸ ..÷ º :_ c:ec e÷Orcu ÷ç:.
O¸Oc ÷: eo:u ÷ç:. c¸. c¸cu zºo,¯zo r O¸c
rc o¸: o:c cc zo¡z Oc.ec c. r.¸c :_ õcç.O
÷.ecr.O ÷ccO ¡z.º r ¸:_ c..r ecuu5 rcc.
zo¡+ Oc.ec :uO.˙ .÷ ÷O „Ou õcç5 ç.u.O
..÷rO c¸. ¯¯o- ru O¸¬ rô. ÷: zo¡+ Oc.ec
.¸r O¸Oc .: e.Ou õe.. ç.u.O ÷ccO ¯ ru
eçO:.Or O¸¬ rô. zo¡z Oc.c :_ ç.u. rcrO
O¸¬ oe5 cc. -¸c,. e.. O¸Oc õcç5 O¸¬o.O
.¸r e::u õ o¸:. ce÷. ÷Oc.u u¸..˙ e÷O.
O.O÷..O cOe: uO u¸..˙u -çO. .¸u. ÷:
oeur: cccc.¬ ÷ç:. c:. ¸c....ôu -çO. .¸u.
ç e.. O¸Oc õcç. O¸¬ o.O e:: õc.

zo¡+ Oc.ec .¸ ..÷ º :_ õ... O¸Oc ÷ç:. O .Ω
õcç. c¸.c¸cu º¡,!¯s r O o:c cc
c÷.c Oc.ec o∞_ r.¸ c˙ce√çc :_ O õcç.O
÷.ecr.O ÷ccO s.z r O¸¬ o.r. zo¡z Oc.c :_
¡¯,ooo rO O¸¬ c˙÷r og:u õ... c.e5 cc.
-¸c,. ÷: zo¡+ Oc.ec .¸ ..÷ oº :_ ¡¡,z¯o r
og:u õ... c.e5 oc. -¸c,. e.. õ... O¸Oc
õcç. O¸¬ o.O o..r O.ecu e:: o o¸:.
ce÷. zo¡z Oc.ec ç, zooe O ecc õ... .uOu ¸ç
õ..crcue. õ... O¸Oc õ..:.Ocu uO¸c† rô.O
ccOc .¸u.O ç zo¡+ Oc.ec :uO.˙ ÷O c:ec
õ..crcu ÷ç:. c¸. ¯oo ru „Ou õcç5 ç.u.O O¸¬
rô. ç õ... O¸Oc õcç5 O¸¬ o.O :O≥cO:
∞cr õc.
47 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O I» > c-c..r õcçO (or.c,c.)
o,. ò_cr
çcroc 2012 2013
oOOo,r cc ¿or
:ec.. O¸¬÷O:u ÷: _çc¸ r˙ o.:.c ÷:u...cc ec... .¸¸ 1,174 1,419
eu.c¸ec ec_ec.: :. u¸ o¸≥5 3,194 2,718
c.÷¸ O.c ceo. c: 1,143 1,430
c.÷¸ ec... o.:.c O¸¬÷O:u 2,750 1,952
r.or.oòr
ec.e:.c ÷:u...cc 36,446 18,760
c¬c..r c.õO
÷.·ç. ÷:u...cc 7,945 12,762
o.-..: c.õc¸OuO ÷:u...cc 11,017 11,970
o.:.c ÷:u...c, .O:c ÷: uc ÷:u...c 1,852 967
.¸..c · :.:r ocO¸c eçc.c:e5u:O
cc.¿ õcçO
zo¡+ Oc.ec .¸ ..÷ uOc :_ eç.c :. õeç.c .c
÷ç:. O ec._ e.o5 c¸. c¸cu +e¯,¯¯¡ r O o:c
zo¡z c. r.¸ c˙ce√çcO ÷.ecr.O cc ÷ccO ¡!.!
r O¸¬ o.r. zo¡z Oc.ec .¸ r.¸ c˙ce√çc :_
o.r e¸÷ c¸cc¸ oOc...c o.O ÷.ecr.O ÷¸r.
-¸u r.¸ c˙ce√çc :_ ç ÷.ecr. O.ecu ÷..Oc
..÷ º :_ ç c¸.c¸cu e,zss r O¸c rc o¸:.
c:c õ÷u rc.:.r rcu „Oeu.c.c ÷:ec..:.
O¸¬÷O:u cOe: ec.e:.c ÷:u...c O¸¬÷O:u,
-: ÷¸cc., O¸õ¸ o.¸O. ÷: .c ÷:u...c ¸-. ç.
o-.¬O rc.:.r rccu r·.r.ccr :. ..cc o.c.r
õu.c ouc.:cr c¸O:. e.u. e.. r.¸ c˙ce√çc
:_ eç.c .c ÷ç:. Ou eO_çec._ ec._ ouc.:r
o¬ ..O.r c¸O:. ec._ e.o5 erec: ::rc
e¸÷ -¸c,eoc. zo¡z Oc.ec .¸ ..÷ º :_ ç.eç.u.
c:.:cr e¸÷ ÷ccO !.+ r O ec._ õcç5 zo¡+ c.
r.¸ c˙ce√çec ç ÷ccO !.z r çrO. o¬ õc.
rc.r.cr5 cOc.uc rô. ÷ç:. e.. r.¸c˙ce√çec
ç c¸. c¸cu z¡,os! r O¸c rc o¸:.
48 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o.o. ç.cc.or õcçO
zo¡+ c_. ..÷ uOc :_ c.:. o.ec.:u O¸¬÷O:u
cOe: .:. ..c., o.eo. ..c., :¸÷5c.çuc,
O.˙..c., õ≥¸-¸, Oc.c :. .Oue:.Oc¸ ÷Oc.ucO
e.u., ..cc (†õ u¸.. :. .. u¸..) :. u..˙r
(cc u¸.. :. c.eç.c ÷Oc.u O¸¬÷O:u) ÷:
o...cu, e÷-., c..cr o...cuc, ¸÷÷ o...cuc,
O·::c c:.O, r¬., ecOu rOc: ÷: „Oeu.c.c
÷Oc.u cu.ç o.O¸O ç çc O..c: ..Oe.u
÷5c: ec.. rcu ¸¸-c. ÷Oc.u rOc: eo.O:
rcu o:c. ÷cg eçu.O. c. ÷Oc.u rOc:O¸u
c:¸.c o:rc ç. ÷: „Ou ..O. ¸÷÷ rô.O
¸cr.ô o. e5 :_u -¸.ec.ec.:: eo. zooº c_.
..÷ uOc :_ .Ω c.:. o.ec.:u c...c c¸. -¸cu
+eº r O o:c cc zo¡+ ocO¸c ..u ¸¸rr.: c.:.
o.ec.:u c...ecu ÷ccO ¯o r õc.
O.O Is > o.o. ç.cc.orc ç.cc.orc ror _ç
c..r ç.c çrO (or.c,c)
o,. ò_cr
ç.cc 2012 2013
(r.Or._r)
..c. ÷: c.¸5 104,110 101,025
õ≥¸c 33,824 29,145
Oc.c ÷: .Ou e÷O. 14,397 15,036
O.˙..c. 13,566 15,004
r..rc.c :. u.c.çu 7,401 8,292
:¸ ÷5c.çuc 17,532 15,374
o...cu 16,954 18,602
e÷-. 15,803 17,017
..cc c5:¸ c:÷r5 58,996 61,003
cO.:uc 35,187 38,469
c˙c.¸uo.rc.
o.cr..O ÷5-u. ÷:
oeur:
66,632 50,038
orrO 384,402 369,005
.¸..c · :.:r ocO¸c eçc.c:e5u:O
O.O I¯ > õroc çrc.rc cc oocc cdrOcr or c.Or cc.¿ çrc.rrcc c,côo (`) zcIzzcI+
r._ c˙oc√çc ¬.<....o -_cr ¬.<....o -,≥Oro c.o.r. õroc
çrc.rc
†r ºI †r Isz †r +»! çOo,≥ z çOo,≥ + çOo,≥ ! çOo,≥ ã
2012 :u 8.67 8.71 9.30 9.45 - 9.55 - 113.90
ec- 9.51 9.64 10.19 - 10.20 - 10.75 117.23
..c: 11.00 11.06 11.32 10.61 - 10.83 - 125.52
oec 11.93 12.05 12.16 11.46 11.60 11.80 12.10 128.66
.¸c 11.58 12.32 12.50 - 13.50 14.00 129.38
:u 11.12 12.61 12.88 - - - - 132.04
:¸ 11.35 12.85 13.15 - - - 14.15 132.87
oe.. 11.41 13.07 13.31 13.62 - 14.10 - 132.07
÷¸c 11.30 12.57 13.02 - - - - 131.78
:r - 11.90 12.48 - - - - 129.11
eu.O¸ 10.79 12.09 12.85 - - - - 130.33
eç÷¸ 10.00 11.32 11.69 - - - - 128.35
2013 :u 9.63 10.41 11.25 - 10.98 - 10.90 126.85
ec- 9.10 10.08 11.10 - - - 10.74 127.70
..c: 9.26 - 11.35 - - - - 126.81
oec 9.23 10.23 11.34 - - - 11.45 126.03
.¸c 8.73 9.90 10.86 - - - - 126.31
:u 8.66 9.70 10.66 - - - - 127.81
:¸ 9.60 10.75 11.79 - - - 11.17 131.00
oe.. 9.57 10.72 11.72 - 10.87 - 11.17 131.82
÷¸c 9.56 10.71 11.74 - - - - 132.46
.¸..c· c..¬...c e.e:c5 eçc.c:e5u:O ÷: c.:. .c eçc.c:e5u:O, . ¸r. .: -¸rO
49 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
¬.<....o cocccO
oocc oç_ cO.ccc r.occ..rc
zo¡z Oc.ec c_. ..÷ º ÷.. ÷¸÷çe5 ç zo¡+ o∞_
r.¸c˙ce√çc :_ c..¬...ccO .ç¸ .¸. c. ÷ccO
+ ru O¸¬ o o¸:. e.e:c5 :. oec.:u rc.r.cr5
÷ç:. õcç5O¸u c÷O .ç. .ç¸ :.c c¸cc¸ -¸cu
¯es r O o:c cc zo¡z o∞_ r.¸ c˙ce√çc :.
÷¸÷çe5 ç c¸. -¸cu e¯ r O¸¬ o.r. e.. O¸¬o.O
c..u O.ecu e:: Oec zo¡z Oc.cO ÷.ecr.O zo¡+
c_. ..÷ º :_ cuc.Oc:u õcç5 ÷ccO ¡¡ ru ¸:_
c..c. zo¡+ ÷¸c:¸5-c .÷ oO÷.uec ç c¸O: ÷.÷:
O.O 19 > oocc oç_ cO.c cr.cc
o,. ò_cr
çcroc
zcIz or c,c zcI+ or c,c
rr. ç,crcOrr rr.
o.c5cr .ç¸ e..c (:uO.˙ ¡ †uO) (97.8) (144.5) (144.5)
o.∞c5 :. eOu: ¸¸-5 ..u ÷.÷: .ç¸ .¸. c5 702.7 895.0 723.8
e.e:c5 rc.r.cr5O¸ ÷.÷: .ç¸ .¸. c,5 (832.9) (935.2) (921.6)
o.ec.:u rOc: ÷ç:. ÷.÷: .ç¸ .¸. c,5 ¯ (373.0) (401.6) (370.4)
.ç. .ç¸ o:˙r:c:.c (503.2) (441.8) (568.2)
ç_ .c .¸u5 ¯ 1,024.7 1,143.0 1,133.7
.c o.c÷ e.o5 (467.7) (659.7) (528.8)
.ç. .c .¸u5 557.0 483.3 604.9
.¸¸c5 ..e5 e..c !"#$% / .ç. :¸uc: cu.†c) (54.1) 0.3 (13.1)
oO÷.u .ç¸ e..c (÷¸c:¸5-c +o †uO) (98.1) (102.7) (120.9)
.¸..c· c..¬...c e.e:c5 eçc.c:e5u:O
¯ CS-DRMS : O.c:. rc o¸: zo¡+oº+o †u çrO. c:cO ¸¸-. O¸¬÷O:u :. O..c·: .c o¸:_: eo

.ç¸ e..c (:.c) c¸. -¸cu ¡z¡ r O o:c, cc zo¡z
Oc.ec ÷¸c:¸5-c .÷ oO÷.uec ç c¸O: :.cO O¬.
c¸. -¸cu z+ r O¸¬o.r.
o.o. <c r¿or.ro<c
zo¡+ .¸ ..÷ º :_ c¸. -¸cu ¡,¡+! r ÷.÷: ç_ .c
.¸u5 c...cr O.c:. rc o¸:. e.. r.¸ c˙ce√çc
:_ eç.c :. õeç.c c.:. .c o.c÷ e.o5
c¸. -¸cu ¯zº r O o:c .ç. .c .¸u5 c¸. -¸cu
eo¯ r õc.
O.O zo > cçcc <c .,rOc _.r. c.Oo.r -,≥Oro
o._.O rrr r¿ †rc r_ côo co.<c
(o,. ò_cr)
cc.¿ çrc.rc
SLDB2016E 26/02/13 26/03/16 20,237 400
SLDB2016E 27/03/13 26/03/16 16,352 400
SLDB2016B 01/07/13 30/06/16 11,727 400
SLDB2018A 01/07/13 01/07/18 21,761 41 5

.¸..c· . ¸r. .: -¸rO
50 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O 21 > cçcc <c .,ro ¬.<....o -_cr zcI+ (orO.˙ c,cr,O-o)
rrr r¿ †rc co.<c (o,. ò_cr) -o r,- c.o.r. çc,cO
i †r 91 †r 182 †r 364 †r 91 †r 182 †r 364
1/4/2013 2,125 7,350 20,727 11.01 12.21 12.64
1/11/2013 2,097 8,296 20,935 10.98 12.01 12.61
1/18/2013 1,056 3,721 29,841 10.83 11.76 12.51
1/25/2013 1,000 3,149 14,206 10.70 11.57 12.50
2/1/2013 2,000 3,000 30,823 10.52 11.42 12.35
2/8/2013 1,390 2,000 17,000 10.28 11.29 12.34
2/15/2013 4,255 4,945 15,231 10.12 11.21 12.34
2/22/2013 926 1,135 12,919 10.11 11.20 12.34
3/1/2013 3,027 4,172 11,573 10.11 11.20 12.34
3/8/2013 2,425 1,270 24,288 10.12 11.22 12.38
3/15/2013 2,920 1,076 8,451 10.18 11.28 12.44
3/22/2013 1,137 1,352 3,971 10.24 11.38 12.51
3/29/2013 825 0 8,007 10.29 - 12.62
4/5/2013 775 0 8,062 10.29 - 12.61
4/12/2013 1,000 1,000 6,000 10.28 11.39 12.62
4/19/2013 1,000 340 12,683 10.27 11.38 12.60
4/26/2013 1,000 1,000 8,990 10.26 11.36 12.60
5/3/2013 1,000 3,000 18,530 10.22 11.35 12.58
5/10/2013 1,000 3,000 12,082 10.20 11.33 12.54
5/17/2013 1,000 2,923 15,191 9.72 11.01 12.05
5/24/2013 2,258 3,000 11,000 9.72 11.00 12.07
5/31/2013 1,430 4,918 17,304 9.70 11.00 12.07
6/7/2013 1,314 3,000 20,359 9.67 10.90 12.06
6/14/2013 943 2,767 11,236 9.63 10.89 12.06
6/21/2013 1,590 2,016 7,145 9.62 10.89 12.06
6/28/2013 627 7,712 34,100 9.63 10.78 11.84
7/5/2013 579 500 9,539 9.62 10.78 11.85
7/12/2013 1,000 1,000 11,742 9.59 10.75 11.82
7/19/2013 935 1,022 15,470 9.59 10.73 11.77
7/26/2013 0 0 9,275 - - 11.73
8/2/2013 0 0 24,809 - - 11.68
8/9/2013 0 0 17,615 - - 11.75
8/16/2013 1,095 821 6,340 9.57 10.73 11.74
8/23/2013 0 750 8,185 - 10.72 11.72
9/6/2013 593 1,278 849 9.56 10.71 11.74
9/13/2013 1,084 256 2,709 9.57 10.71 11.74
9/20/2013 770 472 1,250 9.56 10.71 11.75
9/27/2013 500 325 13,897 9.56 10.70 11.75
.¸..c· . ¸r. .: -¸rO
51 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O 22 > cçcc <c .,rO¬.<....o -,≥Oro zcI+ (orO.o c,cr,O-o)
¬.<....o ç,c ccrr cçc. O.rO
cc¿çoo rôo
zo¡+ ÷¸c:¸5-c +o oO÷.uec ç ur: r_ :.
O¸.O cO:u c..¬...c o¸c ÷::rO¸ O5u.r.
c¸. -¸cu !z! r õc. e.. o¸c ÷::rO¸ o.c
zo¡+ or ¡¯ çcu c.:. .¸. r_.u.rc. (O.r.)
(÷e...u) cu:u ÷e...uc rcu ¸ç zoo+ or
o._.O rrr r¿ †rc r_ côo co.<c
(o,. ò_cr)
-o r,- c.o.r.
çc,cO
08.50%2018C 15/01/13 01/04/18 16,392 12.11
09.00%2021A 15/01/13 01/05/21 10,000 12.94
09.00%2028A 15/01/13 01/07/28 16,800 13.61
08.00%2016B 24/01/13 01/06/16 4,000 12.21
09.00%2021A 24/01/13 01/05/21 1,107 12.93
09.00%2028A 24/01/13 01/07/28 4,500 13.61
08.50%2018D 01/02/13 01/06/18 10,300 11.93
09.00%2021A 01/02/13 01/05/21 25,000 12.71
09.00%2028A 01/02/13 01/07/28 10,150 13.57
08.50%2018B 15/02/13 15/07/18 4,300 11.92
08.00%2018A 01/03/13 15/11/18 2,000 12.19
07.00%2023A 01/03/13 01/10/23 2,000 13.07
08.50%2018B 01/04/13 15/07/18 3,000 12.72
09.00%2023A 01/04/13 01/09/23 6,000 13.11
09.00%2026A 01/04/13 01/02/26 6,000 13.50
08.00%2022A 02/05/13 01/01/22 1,000 13.08
09.00%2025A 02/05/13 01/05/25 2,000 13.44
09.00%2043A 03/06/13 01/06/43 3,000 13.89
09.00%2033A 17/06/13 01/06/33 8,050 13.50
09.00%2043A 17/06/13 01/06/43 5,050 13.89
08.00%2018A 15/07/13 15/11/18 7,400 12.42
08.00%2022A 15/07/13 01/01/22 3,000 12.83
09.00%2033A 15/07/13 01/06/33 5,000 13.67
08.00%2018A 01/08/13 15/11/18 5,000 12.41
09.00%2028B 01/08/13 01/05/28 20,000 13.44
09.00%2043A 01/08/13 01/06/43 10,000 13.89
05.80%2017A 12/08/13 15/01/17 1,600 12.08
+ çcu c.:. .¸. r_.u.rc. (O.r.) cu:
cOe: çrO. o¸: c˙† e.. O÷ec: :.
c÷.c O÷c eçrr ÷...u. ç.eç.u.c.†:ec
c:.:cr e¸÷ ÷ccO ¯ (c¸cc¸ -¸cu ¯++)
¸r.O. eu..¸:. zo¡+ ÷¸c:¸5-c +o †u çrO.
eu.ccO o¸c ÷::r c_-ç e:.c:c¸ o¸...
II : çrO. o¸:.
52 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
õcçc o_.crc
õcçc o_.cr or.r.
õeç. ÷5c: eçc.c:e5u:O .¸†:: oe.u,
¸uO rc.:.r c.:. o.ec.:u O¸¬÷O:u ÷ç:.
zo¡+ Oc.ec :uO.˙ ¡ ÷O ÷¸c:¸5-c +o çrO.
r.¸c :_ õõ. õeç. ÷Oc.u c.c.Orc¸Ou
÷: .c eçu o.c:u ÷.. . ¸r. c:c c_.
o¸: cr.:. c...c o¸.e¬.. c¸cu z,oez.¡
(c¸. c¸cu ze!,ssz.+) r. e.cu, o¸.e¬.. c¸cu
¡,º!o.+ (c¸. c¸cu z!º,zsz.¡) .c o...c Ou o:c
o¸.e¬.. c¸cu ¡z¡.s r (c¸. c¸cu ¡¯,eoo.z r)
cc. c∞ucu eo.
zo¡+ Oc.ec ÷¸c:¸5-c +o Ou õO o:÷u rcu
¸ç ÷cg. .õ÷5 c:: O.eO: çrO. o¸:.
O. O z+ > zcI+ Ooocc orO.˙ cO çc..cr çrO. çrcr ror _ç õcçc o_.cr or.r. .õcO
c.Oo.r
c.ocOro,<c
cçr ç.crrc
O..c.r
Oo.c
çrcr r¿
†rc
O..c.rc O.Oc.˙r
õroc
orrc
co.<c
(ò_cr)
o,cc_
(ò_cr)
o.o.
c.._o
(ò_cr)
çõc.ocõc
:c.uc
.c 2013/03/14
.: er._., õ≥¸
÷5ec..ecç :.
e-∞:¸ôe5ç ÷≥Ou :.u
oO. rôe5 O..c·:c
ecu 15,941.0 20,740.8 158.8
.c 2013/03/14
:.:r ..c. cç.:ec
c..u c.¸5 ¸†rôe5
O..c·:c
ecu 12,381.0 16,325.6 129.2
.c 2013/03/14
:.:r ..c. cç.:ec
u.cc,5 ..u ÷≥Ou :.u
o.cr.. O..c·:c
ecu 7,619.0 10,046.4 79.5
.c 2013/03/14
ouc..cc ¸:c ceç.ec
:¸ ÷5c.çu O..c·:c
(o†cc ¡)
ecu 5,166.0 6,811.9 53.9
c∞u 2013/03/18
r¬. :. ... c˙...
O.O÷.c ÷j:. O..c·:
eu.Ou c∞u o...c eOu
rô.
ecu 200.0 266.4 2.1
c∞u 2013/03/18
eeOç. ¸crc. ÷j:.
O..c·: eu.Ou c∞u
o...c eOurô.
(zo¡+)
ecu 550.0 732.5 5.8
c∞u 2013/03/18
÷Ocrc .¬ r¸◊ cu:
O..c·:c ecu 988.0 1,315.9 10.4
c∞u 2013/03/18
. ¸r.eo o.eo. ..c.
÷j:. cO.:u cç.:ec
:.r..c †c. rôe5
O..c·:c
ecu 940.0 1252.0 9.9
c∞u 2013/08/22
..uO ÷5c: ÷Oc.u
...:O O¸¬÷O:u
ecu 192.0 257.5 1.9
53 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
er.˙c.O
c∞u 2013/03/22
:5-ue:.O :.:.u:c
÷5e5¸u ...÷..uc
¸†rôe5 O..c·:c
(oc.ç¸ O¸¬rô.)
c.:.e¬.¸c 2.7 342.7 2.7
.c 2013/07/23
¬u oc¸O. -¸:¸c
rôe5 c:÷r5
¸†rôe5 O..c·:c
c.:.e¬.¸c 33.5 4,407.1 33.5
.c 2013/07/23
er._. .... O·::c
c:. rôe5 o.c:uc
:. .5c: :.r.◊r
õç..¸c ÷..cuc
rôe5 O..c·:c
c.:.e¬.¸c 26.0 3,422.8 26.0
çcrcr <c
÷c.,,ec
Banco Bildao
Vizcaya Argentaria
S.A. o.c:uc
.c 2013/01/15
õ÷¸ c:ucc :¸÷5c.çu
cç.:c rc.:.r rô.
cec. 21.9 3,702.7 29.4
euçc¸u:ec
Co-op Centrale
Raiffeisen-
Boerenleen bank
o.c:uc
.c 2013/02/19
:.:r c¸.c c.cõ¸cu
e÷Oc ¸:e.◊.: rô.
c.:.e¬.¸c 32.6 4,140.7 32.6
.c 2013/02/19
:.:r c¸.c c.cõ¸cu
e÷Oc cOe: o¸:
cccu: c¸.c -¸r
¸:e.◊.: rô.
c.:.e¬.¸c 18.5 3,153.0 24.7
:e.˙c.eo Export
Ìmport Bank of
Hungary o.c:uc
.c 2013/02/14
r¸OO.O :¸ c˙c:≥
crrc c:÷÷rc.
O..c·:c
cec. 17.4 2,954.0 23.4
.c 2013/02/14
¸-.. :¸ c˙c:≥ crrc
c:÷÷rc. O..c·:c
cec. 16.7 2,840.2 22.5
cr÷: c.:..uec
HSBC Bank PLC
(UK) o.c:uc
.c 2013/03/15
c¸er. o.c:uec
÷¸r÷5 rc..u:..¸.
uorc.c rô.
c.:.e¬.¸c 43.6 5,505.9 43.6
.c 2013/06/21
c.eç.c c.¸5 ¸†rôe5
O..c·:c - o†cc z
c.:.e¬.¸c 60.1 7,716.0 60.1
O.O 23 > çr˙c...
c.Oo.r
c.ocOro,<c
cçr ç.crrc
O..c.r
Oo.c
çrcr r¿
†rc
O..c.rc O.Oc.˙r
õroc
orrc
co.<c
(ò_cr)
o,cc_
(ò_cr)
o.o.
c.._o
(ò_cr)
54 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
cuec The Export-
Ìmport Bank of
China
o.c:uc
.c 2013/02/19
..:c - r:c.. ≥5˙c
..c.c çc¬ rôe5
O..c·:ec ..:c -
e-¸o:: er.O÷
c.:.e¬.¸c 200.0 25,375.8 200.0
.c 2013/03/24
:5-ue:.O Oc.c
÷Oc.u O..c·:ec
¸c-ç. r.cccu :.
¸crc. ÷5c.çu
O..c·:c
co.u 960.0 19,700.7 155.4
.c 2013/05/28
..:c r:c.. ≥5˙c
..c.c çc¬ rôe5
O..c·:ec ..:c
e-¸o:: er.O÷
co.u 508.0 10,481.3 83.0
.c 2013/09/18
õ÷¸ rc¸.,.¸ :¸
÷5c.çu O..c·:c
co.u 487.0 10,521.1 79.6
cr÷: :ucçec
Export-Ìmport Bank
of United States
o.c:uc
.c 2013/07/01
-≥¸¸ :.¸o¸¸, o¸¸¸
cr.-ç. :¸ ÷5c.çu
O..c·:c
c.:.e¬.¸c 64.9 8,455.8 65.0
e-¸‚ce5 BNP
Paribas -Belgium
o.c:uc
.c 2013/08/14
O.eu ≥5˙c c.¸5 ::r
¸jrôe5 O..c·:c
cec. 4.4 774.8 6.0
:÷5c.eo UniCredit
Bank Austria AG
o.c:uc
.c 2013/03/14
.:c.u :¸ ÷5c.çu
ec.:u. r.c O¸¬†c.
rôe5 O..c·:c
cec. 10.4 1,704.1 13.5
.c 2013/02/27
:·ç r¸:Ocrc.c cç.:
eçrr :.:r ec.:¸ eO:
÷5c.çuc rô.
cec. 2.4 396.3 3.1
-cc.ocõc
o.÷c.u ÷Oc.u
-¸rO
.c 2013/02/13
õc_ r¸.cec u..˙r :¸
:. ÷uc.cr.r O..c·:c
- o:ecr .¸.cuc
õ..¸.: 25.9 5,061.6 40.1
.c 2013/05/08
cõ:c¸ -¸.r: :.¸
r.ccr..:.O O¸¬ †c.
rôe5 O..c·:c
c.:.e¬.¸c 100.0
16,462.4 130.3
.c 2013/05/08 õ..¸.: 19.9
.c 2013/08/19
o...cu o.ec ÷Oc.u
O..c·:c
c.:.e¬.¸c 100.0
26,412.7 200.8
.c 2013/08/19 õ..¸.: 66.6
c∞u 2013/05/08
cõ:c¸ -¸.r: :. :.¸
r.ccr..:.O O¸¬†c.
rôe5 O..c·:c
c.:.e¬.¸c 1.5 189.6 1.5
c.Oo.r
c.ocOro,<c
cçr ç.crrc
O..c.r
Oo.c
çrcr r¿
†rc
O..c.rc O.Oc.˙r
õroc
orrc
co.<c
(ò_cr)
o,cc_
(ò_cr)
o.o.
c.._o
(ò_cr)
O.O 23 > çr˙c...
55 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o.:.c :. r·.rc.
÷õ..uc
c∞u 2013/07/15
ec...c :. o.:.c
÷cr.::.O ÷j:. ..˙:.
Oc.uc
c.:.e¬.¸c 0.5 58.9 0.5
c∞u 2013/08/05
r·.r.ccr c_e-..
uec..uec oO..u.
r_.u.rc.c rôe5
O..c·:c
c.:.e¬.¸c 0.3 35.7 0.3
ou:c:.:r ÷Oc.u
÷..c
.c 2013/08/19
eçO¸u, e÷-. o.ec
÷Oc.u O..c·:c
õ..¸.: 129.8 25,849.0 196.5
c∞u 2013/07/18
¸ue5 eru¸÷..ucr
e¸÷ c.÷¸ o...cu
cç.:c c˙Oc:uc rô.
c.:.e¬.¸c 11.1 1,461.4 11.1
ou:c:.:r
÷Oc.uc ÷j:. O
:ecr oc.ç¸
.c 2013/06/10
er._. :.:r .:...c.
O..c·:c

c.:.e¬.¸c 50.0 6,319.4 50.0
cr÷: :.:ue.
÷Oc.u O¸¬÷O:u
c∞u 2013/02/27
o.c:u -¸.¸uo. o†cc
ix
c.:.e¬.¸c 0.1 17.1 0.1
c∞u 2013/07/10
UN - REDD :.:r
O¸¬÷O:u zo¡+-zo¡¯
c.:.e¬.¸c 1.9 260.7 2.0
c∞u 2013/07/25
:c÷.c „O ÷¬Or .r:
u.c.çuc cOc.uc rô.
c.:.e¬.¸c 4.0 526.1 4.0
c∞u 2013/07/25
..uO oc:O.÷r5
er.c÷. ÷j:. ÷:.c -
o†cc z
c.:.e¬.¸c 0.5 69.8 0.5
c∞u 2013/07/17
O..c·: r_.u.rc. :.
e.e:c5 eçc.c:e5u:O
÷..u.: rô.
c.:.e¬.¸c 0.2 29.5 0.2
c∞u 2013/08/13
. ¸r.eo u:c -¸.:.r
rô., cr:∞.c :. ÷..:
cr.-ç.:.OcO ceo. o.
.r:.: rô.
c.:.e¬.¸c 10.9 1,443.0 11.0
c.Oo.r
c.ocOro,<c
cçr ç.crrc
O..c.r
Oo.c
çrcr r¿
†rc
O..c.rc O.Oc.˙r
õroc
orrc
co.<c
(ò_cr)
o,cc_
(ò_cr)
o.o.
c.._o
(ò_cr)
O.O 23 > çr˙c...
56 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
cr÷: :.:ue.
:u.:u oc.ç¸
c∞u 2013/06/07
...:.r c:uu e÷-.
e÷O.Or ¸-.ç. ÷j:.
:.:r ..˙:.Oc .r:.:
rô.
c.:.e¬.¸c 5.9 747.4 5.9
cr÷: :.:ue. _..
oc.ç¸
c∞u 2013/02/27
UNÌCEF O¸¬÷O:u
2013 - 2017
c.:.e¬.¸c 50.2 6,401.0 50.2
cr÷: :.:ue.
rc..u: ÷Oc.u
÷õ..uc
c∞u 2013/01/15
. ¸r.eo rc¸∫O¸
o.c∞. ÷j:. Ou
..˙:.Oc cΩ¸ rô.
c.:.e¬.¸c 1.5 193.0 1.5
orrO 264,882.3 2,062.1
igyk ( tla tla úfoaY uqo,a úksuh tallfhka w;aika lrk,o uqo,a m%udKhkag w∞, tlai;a ckmo fvd,r® yd remsh,a m%udKhka .Kkh
ls¯fï° w∞< .súiqï w;aika l< †kfha mej;s úksuh wkqmd;slhka Ndú; lr we;'
uQ,dY%h ( úfoaY iïm;a fomdr®;fïka;=j
e.. r.¸ c˙ce√çec ç c_e.u ¸ç cr.:. c...c
c..u ÷Oc.u c.c.Orc¸Ou.c eçu o.c:u
ouO O.O z! : çrO. o¸: o:c, .c cr.:. .õ÷5
O. O z! > õcçc o_.cr or.r. (zcI+, orO.o c,cr,O-o)
c¸cu
c.Oo.r c.ocOro,
co.<c
<c cç.r orrO
o.o.c.._o o,cc_ o.o.c.._o o,cc_ o.o.c.._o o,cc_
çõc.ocõr 1,322.7 169,176.9 32.9 4,167.0 1,355.6 173,344.1
cuc 517.9 66,078.9 - - 517.9 66,078.9
:c.uc 421.5 53,924.7 30.2 3,824.3 451.7 57,749.1
cr÷: c.:..uc 103.7 13,221.8 - - 103.7 13,221.8
cr÷: :ucçc 64.9 8,455.8 - - 64.9 8,455.8
er.˙c.O 59.5 7,829.9 2.7 342.7 62.2 8,172.6
euçc¸u:c 57.3 7,293.7 - - 57.3 7,293.7
eOu: 97.9 12,372.1 - - 97.9 12,372.2
-cc.ocõc 617.6 80,105.2 88.9 11,433.0 706.5 91,538.2
o.÷c.u÷Oc.u -¸r 371.2 47,936.8 1.5 189.5 372.7 48,126.3
ou:c:.:r ÷Oc.u ÷..c 196.4 25,849.0 11.1 1,461.4 207.5 27,310.4
cr÷: :.:ue. uec.‚:
o.c:uc
- - 76.3 9,782.1 76.3 9,782.1
ou:c:.:r ÷Oc.uc ÷j:. O
:ecr oc.ç¸
50.0 6,319.4 - - 50.0 6,319.4
orrO 1,940.3 249,282.1 121.8 15,600.0 2,062.1 264,882.3
igyk ( tla tla úfoaY uqo,a úksuh tallfhka w;aika lrk ,o uqo,a m%udKhkag wod< tlai;a ckmo fvd,r® yd remsh,a m%udKhka .Kkh
lsrSfï wod< .súiqï w;aika l< oskfha mej;s úksuh wkqmd;slhla Ndú; lr we;'
uQ,dY%h ( úfoaY iïm;a fomdr®;fïka;=j
¸¸c÷:O o∞_ .c uc.cu ç ÷::O O.O z¯ :
çrO. o¸:.
c.Oo.r
c.ocOro,<c
cçr ç.crrc
O..c.r
Oo.c
çrcr r¿
†rc
O..c.rc O.Oc.˙r
õroc
orrc
co.<c
(ò_cr)
o,cc_
(ò_cr)
o.o.
c.._o
(ò_cr)
O.O 23 > çr˙c...
57 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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58 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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59 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
59
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60 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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61 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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62 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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63 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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64 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
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has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
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Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
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further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rEm igyk 10 > tl`.;djh m< l< Wmfhdackh fkdjQ
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zo¡+ Oc.c ÷ç:. cec.r.uc rcu ¸ç .Ω
.c e÷O.rc. c...c o¸.e¬.. c¸cu ¡,¡!+.o
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÷¸c:¸5-c +o Ou õO ¸u ÷ccO so r e.o5 ÷≥
rc :e¬.
65 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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sh
k
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iema;eïnr®
2013
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66 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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67 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O zº > o_. cr.Or o.o. O.◊o O.Oc.ccr c _.¬∞crOc
c¸. c_cu
O..c.oc 2011 2012 c,cr,O-o
2013*
2013
cco.rOr
1 _r. õ≥_-_ ..¬_c (19,266) (61,163) 17,800 21,182
2 _r. -u: ec_ uc.c ÷÷..O (94,508) (89,658) (3,748) (3,524)
3 . _r. Oc.c o.r.˙c 257 5,211 8,627 7,215
4 ._ru cc.c_cu÷ ÷.... (19,675) (29,973) (15,754) (26,695)
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6 . _r. ..u...u ..¬_c (3,490) (4,653) (4,178) (4,588)
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r.cc..c
428 452 346 542
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15 . _r. o.cceoç :.. ÷÷..O 64 54 53 57
16 c.:. :.. uc.c ÷÷..O 476 468 471 512
17 ÷O..u c,cO.:u :._c 678 739 584 934
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22 ÷ ..÷: c . Ou ec.O ec._ ÷: . Ou e÷ O. (. _r.)
÷....
2,140 3,859 4,009 5,041
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25 :.cr cr.. c.c oc.ç_ 2,315 2,537 2,563 2,805
26 r·.r.ccr :. e..õ:u cr.. ..¬_c (3,687) (4,841) (3,611) (4,853)
27 . _r. ocucu .c cr.. ÷÷..O 113 163 179 183
28 :.cr e_.cdc ..¬_c 903 1,187 988 1,313
29 ÷Oc.u e_.cdc ..¬_c 1,901 2,193 1,385 2,498
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37 . :cOc.ucc .: ec.:_ (28) (121) (66) (141)
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39 ÷..÷:c _r. ÷ec.÷ 79 47 628 798
40 . _r. :÷c rc..uc ..¬_c (_r÷_) 51 73 25 88
41 ÷..÷:c c.:. O.◊: uc.c ÷÷..O 62 105 73 132
42 c.:. ¸O ÷÷..O 603 828 287 (58)
43 c.:. .¸. uc.c ÷÷..O 134 141 80 147
44 ÷..÷:c e:.eO_ ¬eOe_.cc÷ _r. ÷.... (948) 758 156 948
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crcO
(154,481) 34,128 38,026
._..· c.:. O.◊: O.O÷.ccu ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
68 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c¸. c_cu
O..c.oc 2011 2012 c,cr,O-o
2013*
2013
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oe_õrc. c.:. O.O÷.ccu ÷c eO_ç ..˙c.Ou
cΩ_ rccu _.c∞c O..c.c e_÷ c¸Oc.O ÷.c õc.
eç.c r˙ o..c u.c.çu ÷ç:. o¸c Oc.uc ¸_g.c
÷.. c_er. ÷....O ÷: :.cr c. ÷5cc ÷Oc.u
..¬_cO ÷c ..˙c.Ou O¸¬ rc .ucu eO_çec._
∞crcOc Oc.uc rc .¸u.O :¸rõc.
c:cO occ oeurc O.◊: O.O÷.ccu eO_çec._
Oc.uc, o∞_ r_.u.rc. re.cec Oc.uc ÷:
o.ccuc .:. eçu ocec.. :. .¸OΩ ÷ç:. çrOu
_ç ccD.c cu ÷..r .c c. r.cc÷..ucr ecuu5
rcc.
._..· c.:. O.◊: O.O÷.ccu ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
69 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c..r o.o. O.◊o O.Oc.ccr c rc.r.ôrOc
rc.r.ô c.:. O.◊: O.O.÷ccu ¯¯ : ÷.÷c Ocr5 cçue.u ÷ccO º¯ r uec.:uc rcu c..u O.◊:
O.O.÷ccu ¡º : r.cc÷..ucu c:c ç¸reo.
-_crr
_r. õ≥_-_ ..¬_c
O.O +¡ > _.r. õ≥_-_ o<._cc o_. rrrOc
rr. c,c.
2013*
c.cc..r
cco.rrr
2013
2011 2012
ç.∞co (o,. ò_cr) 137,003 170,652 142,774 198,178
õ≥_c oe_õc 132,460 163,998 139,650 191,378
eOuc o.∞c5 4,543 6,654 3,124 6,800
cocr õcço (o,. ò_cr) 156,269 231,815 124,974 176,996
õ≥_ ¸cc.uc 115,912 173,658 88,458 121,417
.õ÷5.c cOcu c_ ç .¸u5 84,144 120,264 60,892 76,012
_õ. 31,768 53,394 27,566 45,405
u.c.çu, u¬cc :. e-∞ :¸ô5 c˙O¸c 18,218 27,658 15,451 26,825
÷÷..cc õcç5 2,014 3,238 1,389 2,390
.c .c ec._ 1,828 6,334 4,426 7,182
eOuc õcç5 18,297 20,927 15,250 19,182
_.¬c(ç_.¬c) (o,. ò_cr) (19,266) (61,163) 17,800 21,182
-¸r .c .¸u5 (c¸. c_cu) 4,520 37,518 21,528 21,528
-¸r .c e.o5 (c¸. c_cu) (5,343) (8,308) (13,669) (36,067)
-¸r .c e..c (c¸.c_cu) 14,629 43,839 51,698 29,300
c.:. .c (c¸. c_cu) 189,090 278,456 278,456 278,456
-u: ec_ ÷÷..O ÷: .õ÷5.c cOcu c_ †
.¸u5 (c¸. c_cu)
103,576 156,395 63,722 99,911
-u: ec_ ÷÷..O ÷: .õ÷5.c cOcu c_ †
.¸u5 ÷ç:. e.o5 (c¸. c_cu)
(83,921) (182,192) (98,072) (149,616)
-u: ec_ ÷÷..O ÷: .õ÷5.c cOcu c_ †
.¸u5 ÷ç:. .õ÷5.c c.c.OcuO e.õc cc
e..c (c¸. c_cu)
75,503 49,705 15,355 -
c..r r.occ..r çocr
õ≥_ ¸cc.çuc :_ õ≥_ · c.c 40:60 30:70 61:39 50:50
õ≥_ o.Oc.c (`) 90 93 94 96
cçc o_.c (`) 11.7 11.0 11 10.6
_rc.çr c.crc (..cO.o. c,c)
c.c õ≥_c (¸u.u) 5,748 6,932 2,288 3,909
:_ õ≥_c 4,020 2,729 4,604 4,986
r¬. :_ õ≥_ -_...c ÷: ÷5c∞cr eu.Ou ._.. 724 727 878 1,325
._ o.c¸ 1,038 1,413 1,151 1,752
orrO 11,530 11,801 8,921 11,972
._..· _r. õ≥_-_ ..¬_c ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
70 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c÷.c r._c c_ cO c_ c¸Oc c:cc r._.◊r
cccOc .c :_ õ≥_ ¸cc.çuc ÷.÷c õ≥_
¸cc.çuecu ÷ccO e¡ çrO. Oc.uc õc. c ouO,
o¸÷ce5uc.c ÷...u. ouc.cc zo·so r O :_
õ≥_ :. c.c õ≥_ ¸cc.çu ÷ccc zo¡+ c_. ..÷ º
c_ e¡·+º çrO. eOu÷ õc. e.: ccc_cr e_÷ zo¡z
Oc.ec õ≥_c crrcr ucço. ÷ç:. çcu _ç c¸.
zz.¡+ r õcç. zo¡+ Oc.ecç c¸.¡¯.¯¯ r çrO. o¬ õc.
zo¡z Oc.ec õ≥_ crrcru ..¬_cO _¸-.
÷...u. o.∞c. c¸. ¡¯.ee r O occ, zo¡+ Oc.ec ç
õ≥_ ..÷c ÷e...ucc ÷.. c. o.∞c. c¸.¡¯.eo
çrO. Oc.uc o. ÷: õ≥_ ¸cc.çu c˙O¸c o¬ o.
e:ceOu zo¡+ c_. ..÷ oº r r._÷..O c_ c¸.
-_cu ¡¯.s r _.ccr O.cc. rô.O ..¬_c ÷.c
õc. e5 Ou õO :_ õ≥_ -_...cO_ ..˙c.Oc ÷ccO
¯o r c.. Ou occ zo¡+ Oc.c oO÷u Ou ecr
c.cõ≥_c :. :_ õ≥_c :uuc rôe5 ouc.cc ¯o·¯o
e_÷ cOcO.e.u c..O :¸r OOe:.c zo¡+ Oc.c
oO÷.uec õ≥_-_ ..¬_c c¸.-_cu z¡ r c..
e.e:c5 _.ccr ¸c¸c.O oecr.. erec. e..
Oc.uc cccOcO _.. o. ÷ç:. ÷≥ rcu _¸- ..÷c
÷e...uc ç ¸cr.ô Ou o¸c.
zo¡+ Oc.ec ._ ..÷ º c_ e.e:c5 ..u :. -¸r
.c _-. .¸u5 c_u :uuc O ocecr ._ cO.:cu
u÷. ..¬_c, _r. -u: ec_ uc.c ÷÷..OO :.
ecç._r o.ecu õ≥_c c_ ç .¸u5 ÷ç:. e.õc
cc O .ç_u c¸. -_cu ºs r e.o.O ÷.c õc. c
ouO, zo¡¡ Oc.c o.ç -u: ec_ uc.c ÷÷..O :.
ecç._r õ≥_c ÷¸cc5rc¸Ou ÷ç:. e.o.O c- c¸.
-_cu ¯¯.¯ r :. .ç_ c¸. -_cu ¡¯.! r çrO. o¬
o o¸c occ e.. :. .ç_ zo¡+ Oc.c oO÷.u Ou õO
÷5cc.ecu e.O. ¸c.O ..¬_c oecr.. rcc.
rEmigyk 15 > ú≥,s W;amdokh 2005-2013
c
k
-
0
5
c
Q,
s-
0
5
c
k
-
0
6
c
Q,
s-
0
6
c
k
-
0
7
c
Q,
s-
0
7
c
k
-
0
8
c
Q,
s-
0
8
c
k
-
0
9
c
Q,
s-
0
9
c
k
-
1
0
c
Q,
s-
1
0
c
k
-
1
1
c
Q,
s-
1
1
c
k
-
1
2
c
Q,
s-
1
2
c
k
-
1
3
c
Q,
s-
1
3
c, ;dm
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
r
e
'

ñ
,
sh
k
2011
-19,266
-61,164
17,800
2012 2013 iema;eïnr®
flgqïm;a
rEmigyk 16 > ,xld ú≥,sn, uKav,fha ,dN∞hS;ajh
-70000
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
71 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O +z > _.r. -ro cr_ rr.r c.cO.co o_. rrrOc
rr. c.cc..r
cco.rrr
zcI+
2011 2012 c,c. 2013*
cocr ç.∞co (o,. ò_cr) 356,903 515,704 390,291 520,388
e.e:c5 o.∞c5 356,575 513,252 385,534 514,088
eOuc o.∞c5 328 2,452 4,757 6,300
cocr õcço (o,. ò_cr) 451,411 605,362 386,427 515,236
õr.5 c˙O¸c 426,583 568,238 363,567 484,755
._. c˙O¸c 9,001 18,360 12,343 16,458
eOuc õcç5 15,827 18,764 10,517 14,023
_.¬c(ç_.¬c) (o,. ò_cr) (94,508) (89,658) 3,864 5,152
e:‚u c˙O¸c (c¸. c_cu) - - (7,612) (8,676)
._cu _ç _.cc(o_.cc) (c¸. c_cu) (94,508) (89,658) (3,748) (3,524)
-¸r .c .¸u5 (c¸. c_cu) 285,615 398,549 333,926 359,800
-¸r .c e.o5 (c¸. c_cu) 188,867 335,361 341,370 372,650
ccõc cr -,.r <c ccoc (o,. ò_cr) 147,975 211,163 203,719 190,869
._.. · _r. -u: ec_ ÷÷..O ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
zo¡+ Oc.ec c_. ..÷ º c_ ç c¸. -_cu ¯.e r O
e:‚u .ueçuOO o∞_ .¸_c5 rô.O ecc c¸. -_cu
+.º r e.e:c5 _.ccr O.cc. rô.O -u: ec_
uc.c ÷÷..O ÷.c õc. zo¡+ Oc.c oO÷.u Ou õO
o¸÷ce5uc rcu _ç c¸. -_cu zo r o_.cc c¸.
-_cu +.¯ çrO. o¬ rc.O oecr.cc. e.c zo¡z
Oc.ec O.cc. O -_cu sº r O o_.cc :. ÷÷çu õO
r¸c eceuu Oc.ucr.
e_.r eO_çec.e_ e-.cec_ -¸c_cr c_ o¸.e¬..
¡oº r ÷...u. o.cr c¸Oc. e.u. zo¡+ ec-cO.˙
.÷ ÷O rcu _¸- c_ ..u ÷e...uc e:ceOu
ccec_, ¸õ ec_ ÷: .Ou c.u. ¸u.u :¸c¸. õO
oeurc u.c.çu ÷ç:. c˙O¸c c_7- Ou c_ r.cr
cOcO.e.u c..O ÷÷..OO :¸r õc. ce÷ OOç, õ≥_
¸cc.çu re.cec ¸õec_ ÷ç:. Ou ¸_g. o¬ o.
e:ceOu o∞_ r._ c˙ce√çc c_ _r. -u: ec_
÷÷..eo o.∞c. c:c O¸O◊.
÷..e_.cc r._ c˙ce√çc c_ ç ec_ c˙c:≥O
÷...u. u¬cc rOcc ÷ç:. :¸c¸. õO †u ¡e r
c˙c:≥ rOcc ucc rô.O ÷≥ O occ o-.¬O c˙c:≥
rô. ÷:cr rô. ÷ç:. ¸:_ u.O.r ÷:c e-.cec_
o.ucuc rô.O ÷÷..O -_.ec.ec.cc eo. cOç,
-_.rc ÷cr.cc.Oc c:Oc¸ rô. ÷ç:. ec_ .-¬.
r
e
'

ñ
,
sh
k
2011
3,864
89,658
94,508
2012 2013 iema;eïnr®
rEmigyk 17 > Lksc f;,a kS;s.; ixia:dfõ ,dNodhs;ajh
-100000
-88000
-76000
-64000
-52000
-40000
-28000
-16000
-4000
8000
20000
rEmigyk 17 > fn%kaÜ fndrf;,a ñ, 2002-2013
n
e
r
,
h
g

w
e
'
f
v
d
'
0
20
40
60
80
100
120
140
160
c
k
-
0
2
f
k
d
j
e
-
0
2
i
e
m
a-
0
3
c
q,
s-
0
4
u
e
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s-
0
5
u
d
r
®;
=-
0
6
c
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f
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d
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i
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m
a-
1
3
72 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c:÷r5 ÷: cO o∞_ oeurc c:÷r5 O¸¬ †c.
rô. ÷ç:. ÷÷..O ._r ccOccu e.u o¸c occ
zo¡! Oc.ec ç c. rOcc o.c5c r˙.O ç oecr.cc.
zo¡z Oc.ec ÷≥ O c.¬O Ou c¸. c_cu z¯s O
÷.ecr.O :.cr :_÷5c.çu :. :_.cO:u ..¬_c
zo¡+ Oc.ec ..÷ º oO÷.uec † c¸. c_cu +sº r
_.ccr ¸cccu oecr.c _.c ..O.O _.. o.O
÷.c õc. e5 ÷ç:. ._rO. e:c Oec ecc Oc.ec
..÷ º r r._cO ÷.ecr.O o.∞c. ÷ccO ¡+ r O¸u
¸:_ o.cru O¸¬ o.c e.e:c5 õcç. ÷ccO s ru
O¸¬ o.cc.
c˙÷≥ c.uc :_ ÷¸cc5 o.Oc.c ÷ccO !!.+ r
cc.ccr çrO. oecr.c O ¸_rrc e.. r._ ÷..O
c_ ç o.÷uu e_÷ _.. rc .¸u.O :¸r o o¸c
occ uO :_ ÷5-u.c. ¯º,ºº¯ r _-. eçcu .Ω :_
÷5-u.c.Ocu ÷-..O ¡,ee¯,eeo r çrO. O¸¬ õc.
:_÷5c.çu :. :_.cO:u ..¬_c zo¡+ ._ ..÷ º
c_ :_c ¬u cOc c_cu +e¡ r ucçO. o¸c occ
e.cu c.õccO e.u o¸c :_ c...c ¬u cOc
c_cu z¯¡ r c.. eo.
zo¡+ ç o.∞c5 eu._-u :_ ¸_rrc ÷ccO zº.z r
OOç cc c÷ .c O÷ec o.c Ou ÷ccO zº.º ÷..
÷÷çu õO zo¡+ O÷ec ç ç_ O¸¬ o.ru cu5 ÷ccO
+o.ze çrO. O¸¬o.r cecuu5 rcc. ce÷ OOç,
er._. .: u.c ÷c. ÷..O c_ o.∞c5 eu._-u :_
cc.cc ÷ccO !º ÷..eo cOc.
o_c

:.c r :_ ÷5c.çu ÷: :_.cO:u .. ¬_c
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
oΩ ç.∞co (o,. ò_cr) 14,404 15,682 13.316 20,410
:_c 11,616 13,132 11,787 17,012
:_c o..c o.∞c. 2,519 1,925 1,323 3,129
eOuc o.∞c5 269 269 206 269
cocccO c˙O,c (o,. ò_cr) 13,983 15,940 12,928 19,500
_.¬cc..O (o,. ò_cr) 421 (258) 389 910
c:cO e.õc cc .c e..c (c¸. -_cu) 32.8 36.3 33.7 35.6
c..r r.occ..r çocr
:_ ÷5-u.c.Ocu (÷-..O c_cu) 1.15 1.58 1.66 1.72
:_ u.c.çuc (¬u cOc c_cu) 490 526 361 562
:_ oe_õc (¬u cOc c_cu) 342 368 251 398
o.∞c5 eu._-u :_c (`) 30.4 29.9 30.3 29.2
c˙÷≥ c.uc :_ o.Oc.c (`) 32.3 43.5 44.3 35.7
._.. · :.cr :_ ÷5c.çu :. :_.cO:u ..¬_c ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
O.O ++ > o.rr o_ cOc.çr cc o_.cOcr o<._cc o_. rrrOc
rEmigyk 19> c, iïnkaO;d ixLHdj
ñ
,
sh
k
0.0
0.4
0.8
1.2
1.6
2.0
2011 2012 2013 2013
iema weia;fïka;=
>
k

ó
g
r

ñ
,
sh
k
rEmigyk 20 > wd∞hï fkd,nk c,h iy c, wf,úh
0
100
200
300
400
500
600
700
800
2011 2012
342
158
110
164
562
251
526
148
wd∞hï fkd,nk c,h c, w,úh
2013
iema
2013
mqfrdal;k
73 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
Oo.c
. _r. Oc.c o.r.˙c
zo¡+ O÷ec ._ ..÷ º r r._c c_ Oc.cO c¸c◊ u¸o
c...c o¬ OOç ¸c. õ.._ u¸o ÷ç:. o¸cΩoe5
c:÷r5 O¸¬ †c. rô. u÷. . _r. Oc.c o.r.˙c
õ÷u e.e:c5 rcu _¸- -:.g5 (:,.) c...c
c_cu +.zz çrO. O¸¬ õc. . _r. Oc.c o.r.˙c
õ÷u zo¡+ :u ..÷ec † ¸c:.÷ec O¸¬. -:.g5
c...cr cu5 rue.uc z¡º,zºo r e.e:c5 r_
..÷c e_÷ O.cc..c õc.
...5 c¸:.cc .:uç c.:cr. Oc.cO c¸c◊ u¸o
÷-..O zo¡z ç +s r O occ cc e5 O÷ec ÷¸cc¸5-c
.÷ oO÷u Ou õO º¡ çrO. r¸c eceuu e_÷
Oc.uc õ o¸c. e.. Oc.c ÷ç:. o.ec.:urcu õ÷u
o.r.˙c :c:. rcu _-u e.e:c5O_O ouc,cO
e.õc cc oO. -≥ c...c :. oO. c.:. c..cO
o∞_O uO cc¸-≥ :≥uO. eçu _¸-◊.
o.r.˙c O÷ec c_. ..÷ º r r._c c_ -≥ e.o.O
ecc _.cc c¸.-_cu s.e r O.cc. r_ occ cc
c÷.c O÷cO ÷.ecr.O ÷ccO ¡zo r O¸¬ o.r.
o.∞c. c¸. -_cu z¯.º r cu5 ÷ccO ¯ r o¬ Ou õO
e.e:c5 õcç5 c¸. -_cu ¡e.º cu5 ÷ccO z¯ o¬o.
e.. _.cc _¸-.O ∞cr õc. . _r. Oc.c o.r.˙c
O÷c oO÷u Ou õO ecu`` .çe_ oOc...ecu
oecr.c O.÷c ç ÷.. ÷¸_rc cc _.ccr _-u
o¸c¸c oecr.. erec.
zo¡z O÷cO ÷.ecr.O e.. O÷ec ÷¸cc¸5-c oO÷u
Ou õO õeç. .c .¸u5 c¸. -_cu ¡!¡ ÷O c¸.
-_cu ¡!o.e çrO. ÷ccO ¡ r o¬ õ o¸c occ eç.c
.c .¸u5 c¸. -_cu e.! çrO. ÷ccO ¡s ru O¸¬
o.r ecuu5 rcc.
c occ. cu .cDu. _cOt :. . _r. Oc.c
o.r.˙c c.:. :. ecç._r o.ec cr.-ç.
O..c.ccr e_÷ ¸†rcu _¸- er._. rue.uc
Occu_ _cOt o.ccuc zo¡+ oe..÷c .÷ ç u_
O.ecu õO.c rcu _ç.
T
E
U
s

ñ
,
sh
k
rEmigyk 21 > Y%S ,xld jrdh wêld˙h úiska fufyhjkq ,enQ
lkafÜkr® ^TEU& ^ñ,shk&
0
1
2
3
4
5
2011 2012 2013
iema
2013
weia;fïka;=
:_ ÷5c.çu :. :_.cO:u ..¬_ec eu.e.O .c
c...c c¸. -_cu ++.¯ çrO. cu5 ..¬_ec .Ω
:cr.ccOecu ÷ccO ¡s.z rO o.÷uu o.cr çrO.
¸c. ÷Ω o.cru o¬ o o¸c.
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
oΩ ç.∞co (o,. ò_cr)
37,125 25,949 45,490
u.õr ..÷c
4,860 3,675 5,126
u¸o c..¬ O.:r
19,433 14,696 24,476
O.cc e.e:c5
3,634 3,029 4,704
Oc.c c:÷r5
3,682 2,408 5,513
eOuc
5,517 2,141 5,671
oΩ õcço (o,. ò_cr)
31,914 17,322 19,789
e.e:c5 õcç5
31,159 16,933 18,700
._.rc. õcç5
755 389 1,089
_.¬ç_.¬ (-≥ c.õoO cco) (o,. ò_cr)
5,211 8,627 7,215
-¸r ÷ç:. .c (c¸. c_cu)
5,435 6,389 6,731
õeç. .c (c¸. c_cu)
141,365 140,564 188,439
õeç. .c .c ec._c (c¸. c_cu)
2,255 4,459 5,751
r.occ..rc
O.O +! > c _.r. Oo.c ç.r.˙cc o_. rrrOc
74 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rr. c.cc..r
cco.rrr
2011/12 2012/13 c,c 2013* 2013/14
ç.∞co (o,. ò_cr) 91,164 117,186 54,441 114,498
..u 71,474 93,254 47,132 97,527
.Ou -¬ 10,599 12,804 6,352 13,249
eOuc 9,091 11,129 957 3,723
õcço (o,. ò_cr) 110,839 147,159 70,195 141,193
e.e:c5 õcç5 68,418 89,899 44,084 93,063
._.rc. õcç5 1,431 3,228 1,787 2,592
eOuc 40,990 54,032 24,324 55,850
cocccO _.¬ç_.¬ (o,. ò_cr) (19,675) (29,973) (15,754) (26,695)
-¸r .c e..c (c¸. c_cu) 6,943 27,684 26,926 24,262
c...u ∞crcOc (c¸. c_cu) 14,286 12,600 12,600 13,000
o_r r.occ..r çocr
..u r_ ..u ÷-..O (c_cu) 3,459 3,964 2,145 4,297
.Ou c.u. o¸◊c (÷-..O) 20 21 21 21
.Ou ..c. ÷-..O 46 38 39 39
O.O +¯ > c_.rr .Or co..cO o_. rrrOc
.Or ccO.

._ru .Ou ÷....
._ru .Ou ÷.... zo¡+¡! ._ ..÷ e c_ c¸.
-_cu ¯!.! r o.∞c.r O.cc. r_ occ cc ocO¸c
.c o.∞ce.u ÷ccO ¡¯ r o¬ o.r ç zo¡z¡+ Oc.ec
._ ..÷ e o.∞c.O ÷.ecr.O ÷ccO ¯ r o¬ o.r
ç ecuu5 rcc. cOç, ecc Oc.cO ÷.ecr.O ..
c¸OO5 ÷..rc ÷ccO z r Oc.ucr ecuu5 r_
ç zo¡z¡+ Oc.ec c¸. c_cu zº,º¯+ r O o_.ccO
÷.ecr.O zo¡+¡! ._ ..÷ e c_ c¸. -_cu ¡¯.s r
o_.ccr O.cc. õc.
c:ec ccccc.c cc.crO ouO zo¡z Oc.ec ÷O
Oc. ¯ r r._cr c_ _-. ç.O uccc o¸.e¬.. c_cu
¯oo r c...u o.ec.:uecu zo¡+ Oc.ec c..
r.ccO c_ o¸.e¬.. c_cu ¡oo r (c¸. -_cu ¡z.e r)
_-. ç.O rOcc rcu _ç.
._ru .Ou ÷.... õ÷u ÷..e_.cc r._
c˙ce√çc c_ o¸.e¬.. c_cu zz¯ r O.u. c..¬...c
-¸≥5rc cOc. ç. c_u -u: ec_ uc.c ÷÷..OO
e.õc cc c¸. -_cu z!.z r ¸u.u -_cc e.o.O
rOcc rcu _ç. . _ru .Ou ÷....O ¸†˙ ..÷ e
c_ .Ou c.u. ¸u.u, r_-≥ O.˙r, .Ou ec.Oec._
e.e:c5 ÷: .c e.o5 O¸u õeç.c e.o5
eOueOu c¸. -_cu !+ r c.. e.o.O ÷≥ Ou o¸c.
cocccOr _,- TEU co.<c (ò_cr)
2.32 3.22 4.3
r,o c,ò”O 4,931 3,025 3,691
er._. Oc.c 4,495 2,751 3,691
c¸:. ...5cc .:uç c.:cr. Oc.c 38 91 133
oeurc Oc.cu 398 183 248
rEmigyk 22 > .=jka u.S ixp,khka
0
1
2
3
4
5
6
7
8
uqΩ u.S ixp,kh Y%S ,kalka u.S ixp,kh
ñ
,
sh
k
2011 2012 iema-13 mqfrdal;k- 2013
rr. c.cc..r
cco.rrr
2011 2012* c,c. 2013* 2013
._.. · . _r. Oc.c o.r.˙c ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
._.. · . _ru .Ou ÷.... ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
75 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
ç.∞co (o,. ò_cr) 9,807 11,819 9,614 13,315
..uu.õr 2,142 2,708 2,085 2,942
..uu.õr eu.Ou 6,818 7,980 6,815 9,689
eOuc 847 1,131 714 684
õcço (o,. ò_cr) 7,667 7,960 5,605 8,274
cocccO _.¬ç_.¬ (o,. ò_cr) 2,140 3,859 4,009 5,041
.c .¸u5 29,016 38,839 38,835 47,830
o_r r.occ..r çocr
..u r_ ..u ÷-..O (c_cu) 6,145,532 7,079,920 5,496,569 7,300,000
.Ou ..c. ÷-..O 43,454 48,416 33,107 50,100
O.O +e > .Or cr.Occ._ c. .Or ccO. (c _.r.) co..cO o_. rrrOc
._.. · .Ou ec.Oec._ :. .Ou e÷O. (. _r.) ÷.... ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
.Ou ec.Oec._ ÷: .Ou e÷O. (. _r.) ÷....
zo¡+ ._ ..÷ º r r._ c˙ce√çc c_ c¸. -_cu º.e
r o.∞c.r O.cc. rc o¸c occ cc ecc Oc.ec
._ ..÷ º o.∞c. O c¸. -_cu s.º r o.∞c.O
÷.ecr.O ÷ccO s.! r Oc.ucr ecuu5 rcc.
zo¡z c.. ..÷ uOec c¸. -_cu +.º r O ÷...e5
e.e:c5 _.ccO ÷.ecr.O zo¡+ c. r._c c_ c¸.
-_cu ! r e.e:c5 _.ccr _-. .¸u.O :¸r o
o¸c. e.. ÷.... zo¡¡, zo¡z ÷: zo¡+ ._ ..÷ º r
r._ c˙ce√çc c_ c_O_u ÷ccO zz,++ :. !z r
_.c o.ucrcr cOcO.e.u cu occ zo¡z Oc.ec
ç c¸. c_cu sz¡ r _.c..cr ç cr..cO
cc rcu _ç.
.Ou ec.Oec._ ÷: .Ou e÷O. (. _r.) ÷...e5
zo¡+ ÷¸cc¸5-c +o Ou õO .Ω õeç. .c .¸u5
c¸. -_cu +s.! eo. .:. c..¬...cec .¸†:c o.
.c _-.e.u o¸c õeç. .c .¸u5 ¯ r eOueOu
÷.... õ÷u .c e÷O.rc.c ÷ç:. zo¡+ ._ ..÷
º c_ c¸. c_cu se¯ r e.O. o¸c. cOç, .cc_
:.c.ucc .Ou ec.Oec._ ¸†rô. ÷ç:. _-. .c
o¸.e¬.. c_cu ¡sº r .c .ç_ ç e.o. rô. o.c5c
rô.O uccc occ c. .Ou ec.Oec._ ÷Oc.u
rô. ÷ç:. cO ≥cOc oO.. Ou o¸.e¬..c_cu
rEmigyk 23 > .O: cr.Oco._ c. .O: ccO. (c _.r.)
co..cO o_. rrrOc
0
2000
4000
6000
8000
10000
12000
14000
wd∞hu úhou fufyhqï ,dNh$ ^w,dNh&
o
¸
.

ò
_
c
:
2011 2012 mqfrdal;kh 2013
¡zo r .c .ç_r c: eçOu o†cc e_÷ _-. .¸u.O
ucccc.
¸†˙ Oc. ¯ c_ ç -.¬.cu.cr :.c.ucc .Ou
ec.Oec._ e.e:c5 ..˙c.Oc eç.. rôe5
oO..c.Oc :≥u.e.u o¸c occ c ÷ç:. oO..
¸†rô5 rOcc ç zo¡! Oc.c c_ ç o.c5c rô.O
÷¸_÷5 rc o¸c.
76 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rr. c.cc..r
cco.rrr
2011 2012* c,c. 2013* 2013
ç.∞co (o,. ò_cr) 16,698 20,165 15,946 21,607
..c. e_-u o.∞c. 15,175 18,209 14,172 19,227
O.c ceo.cc o.∞c. 552 654 519 710
eOuc o.∞c5 971 1,302 1,255 1,670
õcço (o,. ò_cr) 24,126 30,137 25,010 32,170
e.e:c5 c˙O¸c 10,322 13,797 11,065 14,350
eOuc c˙O¸c 13,804 16,340 13,945 17,767
oocc ∞crrOc (o,. ò_cr) 5,181 5,894 5,516 7,895
cuc.Occu 3,938 5,319 4,886 5,975
c...u 1,243 575 630 1,920
cro.Oorr ∞crrOccr cc ç_.¬c (o,. ò_cr) (3,490) (4,653) (4,178) (4,588)
-¸rO_O e.õ.O o¸c :. (c¸. c_cu) 396 627 660 690
O.O÷..cc -¸ç5 ÷ç:. e.o.O o¸c :. (c¸. c_cu) 1,570 2,971 3,911 2,824
o_r r.occ..r çocr
e.e:cOu _ç .. r.c. ÷-..O 933,810 923,034 931,527 935,000
e.e:cOu _ç -÷ c. ÷-..O (O.c.r ÷...u.) 4,365 4,779 4,347 4,830
O.O +¯ > c _.r. .or..or o<._cc o_. rrrOc
._.. · . _r. ..u...u ..¬_c ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
c _.r. .or..or o<._c
zo¡z ÷¸cc¸5-c oO÷.uc :. ÷÷çu õO zo¡+ O÷ec:
ouc,c r._ c˙ce√çc c_ . _r. ..u...u
..¬_ec .Ω o.∞ce5 ÷ccO ¯.! r Oc.ucr ÷:
.Ω õcçe.: ÷ccO º.e r ¸:_ c..r O.cc. õc.
e5 e:ceOu ..¬_ec o_.cc c¸. -_cu !.z çrO.
÷ccO zo ru O¸¬ o o¸c.
r_ -≥ cçu. .c e∞c eçr ÷:c -÷ c. o+ r,
÷e-.cec.. -÷ c. ¡+ r :. ccO o.ccO .:.
c..¬...cecu _-. eçu _ç c¸. -_cucr ccc.çu
¸cec.. rc .ucu r¬. -÷ c. zs¡ r ç c_O .c
u.c -÷ c.O_ c.ec.:uOc o.c r._c ¸r.O.
c.. e:ceOu . _r. ..u...u ..¬_c ÷c
..Ouc r_ :¸r -÷ c. o¸◊c -÷ c. !+z ru
o¬ o o¸c. e.. -÷ c. o¸◊c cO ≥cOc .rc.c
rôe5 oc.◊u cOc c¸. -_cu ¯ r zo¡!-zo¡s r._
c˙ce√çc c_ .:. c..¬...cc õ÷u _-. ç.O
÷¸_÷5 rc o¸c.
zo¡o O÷ec ÷O . _r. ..u...u ..¬_c õ÷u
e÷Or oc.÷..r oc.ç_O e.o.O o¸c crc O :.
rEmigyk 23 > Y%S ,xld .ukd.uk uKav,fha uQ,H ;;a;ajh
-10000
-5000
0
5000
10000
15000
20000
25000
wd∞hu NdKavd.r iykdOdr
ysÛ jHjia:dms;
f.ùï
mqkrdjr®;k iykdOdr
j,g miq w,dNh
r
e
'

ñ
,
sh
k
2011 2012 mqfrdal;kh 2013
∞cr .ç_ c...c zo¡+ ÷¸cc¸5-c oO÷.uc Ou õO
c¸.c_cu +,º¡¡ r. e.. cccOc ..¬_ec e÷Orcu
occ o÷:ur.ô cccOcr o¸c rô.O e.u. :Ou
uc.c rc...c. rc. ec.. r˙.O ç e:c o o¸c.
e.. :. ÷. O.O÷..cc e.o5 ccO. ¸c.O ¸c.
¸r.uu ccOc .c cc -O .:. c..¬...cc õ÷u .
_r. ..u...u ..¬_cO :. cO.:u o..c...cO
çuO. o¸c.
77 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
o.o. -,.r
zo¡+ Oc.ec ._ ..÷ º c_ c.:. -¸r c¸ucc cçu.
c¸. ._cu z r ÷.÷..ucO _.. o o¸c. :.c.ucc
cu c_ ..u o¬ o. e:ceOu zo¡z oO÷.uec ç
c¸. -_cu ¯! r O c¸Oc orc .c c...c zo¡+
÷¸cc¸5-c oO÷.uc Ou õO c¸. -_cu ºz çrO. ÷ccO
¯o ru O¸¬ o o¸c.
_.r. -,.rO
zo¡+ Oc.ec ÷¸cc¸5-c oO÷.uc Ou õO c¸. -_cu
¡,¡º¯ r Ocr5 cçu.r ÷..u _r. -¸rO . _.rc
-¸r re.cec oçõcc ÷..uc cO ≥cOc cçO.e.u
o¸c. zo¡z ç c¸Oc ÷ccO ¡¡.! :. ÷¸÷çe5 ç _r.
-¸reo oO. c...u oO..c. ouc.cc zo¡+ :u Ou
õO ÷ccO ¡o.ss rO c¸Oc◊.
r._u c¸ucc c¸. -_cu sz ru, cu5 ÷ccO z¡
ru e.. r._ c˙ce√çc c_ O¸¬o., .Ω c¸ucc
O.u.r. c¸.-_cu ¯so.+ çrO. ÷ccO ¡z.¯ ru
Oc.uc o.O c..u O.ecu ∞cr o o¸c. zo¡z ç
c¸Oc ÷ccO +.+ O ÷.ecr.O .ç. ec._ o.ucrc
zo¡+ ÷¸cc¸5-c oO÷.uc Ou õO ÷ccO z.e
çrO. o¬ o. zo¡+ Oc.ec ¸_rr.c .ç. ec._
o.∞ce.u ÷ccO e¡ r c..r ¸c¸c.O e:c o
o¸c. :.c.ucc cu c_ ..u o¬ o. e:ceOu
zo¡z oO÷.uec c¸Oc ÷ccO z.s O ÷.ecr.O orc
.c ouc.cc zo¡+ ÷¸cc¸5-c oO÷.uc Ou õO
÷ccO !.!¯ çrO. O¸¬ o o¸c.
e.. O÷ec: ¸†˙ ..÷ + c_ ç o¬ c˙O¸c c¸ucc
o.rc.uc rc .¸u. ÷: .c c¸ucc ouc.cc
o¬ rc .¸u. ÷ç:. ¸¬ cccucr .ce:.c, zo¡+
Oc.c ÷ç:. -¸reo _.cc c¸. -_cu ¡s r Ou
o¸c¸c oecr.. erec.
¸:c rc¸. e:ceOu, _r. -¸rO .c c:÷r5
÷¸_÷e5 ç ¸÷÷ cccOec occr.c5 _-. ç., orc
.c ¸¬ o.r..c, .c c:÷r5 orc .c -OO
cco. O¸_¸ro. ÷ç:. uO.c. rc...c. .¸u.
÷: Ocr5 : ..cOc Oc.uc ÷ç:. cOcu. .c
c:÷r5 cce_-u.c rô. ÷: ccO.:.c rô.
o.ç ¸c.c ..c. rc.c.r rô. erec: oO..uc
ec.. rccu ÷.. ec._ ouc.crcu : o¬ o., .c
÷.. ¸Oc rô. ÷: eO_çce_: ¸O._c.Oc o.ç
rc¸. zo¡+ Oc.ec ¸c˙ r._ c˙ce√çc c_ _r.
-¸reO: rc.r.cr5 erec: c:cc -_c,.r ÷≥
rcu o¸c.
rr. c.cc..r
cco.rrr
2011 2012*
c,c. 2013*
2013
oΩ ç.∞co (o,. ò_cr) 70,857 110,138 90,083 126,007
ec._ o.∞c. 61,622 95,022 81,243 113,324
ec._ õcç. 36,216 59,701 58,543 76,057
cç. cc.¿ ç.∞co (o,. ò_cr) 25,006 35,321 22,700 37,267
eOuc o.∞c5 9,235 15,116 8,840 12,683
oΩ cocccO õcço (o,. ò_cr) 16,955 20,870 20,066 31,815
cç._ c˙O¸c 10,460 12,927 10,059 14,915
oeurc õcç5 6,495 7,943 10,007 16,900
-≥ cco _.¬c (o,. ò_cr) 16,485 19,794 11,474 18,135
o_r r.occ..r çocr
o.ec.:u (c¸. c_cu) 152,749 276,655 377,823 331,986
c¸ucc (c¸. c_cu) 595,773 693,440 780,305 824,521
.c ÷: occr.c5 (c¸. c_cu) 543,149 691,899 639,591 689,072
orc .c occr.c5 (c¸.c_cu) 11,416 19,221 31,413 33,926
Ocr5 .c cc_.c (`) 2.12 2.1 1.36 1.5
÷ru.c .c cc_.c (`) 33.45 31.24 21.55 26.5
orc .c ouc.cc (`) 2.1 2.8 4.47 4.7
O.O +s > _.r. -,.rco o_. rrrOc
._.. · _r. -¸rO ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
rEmigyk 25 > rdcH nexl= ;ekam;= 2007-2013
0
500
1000
1500
2000
2500
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e
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,
sh
k
2
0
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78 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ocor -,.rO
rr. c.cc..r
cco.rrr
2011 2012*
c,c. 2013*
2013
oΩ ç.∞co (o,. ò_cr) 67,901 94,633 85,094 113,867
ec._ o.∞c. 61,788 85,241 78,912 105,358
ec._ õcç. 31,470 51,323 56,621 72,758
cç. cc.¿ ç.∞co (o,. ò_cr) 30,318 33,918 22,291 32,600
eOuc o.∞c5 6,113 9,392 6,182 8,509
oΩ cocccO õcço (o,. ò_cr) 20,831 28,061 21,902 29,859
cç._ c˙O¸c 10,547 13,819 8,962 13,106
oeurc õcç5 10,284 14,242 12,940 17,753
-≥ cco _.¬c (o,. ò_cr) 15,600 15,249 6,571 10,250
o_r r.occ..r çocr
o.ec.:u (c¸. c_cu) 129,977 175,491 214,509 223,589
c¸ucc (c¸. c_cu) 550,226 683,950 731,736 790,540
.c ÷: occr.c5 (c¸. c_cu) 461,656 611,414 627,041 690,898
orc .c occr.c5 (c¸.c_cu) 16,062 17,407 30,460 33,852
Ocr5 .c cc_.c (`) 2.6 2.0 1.0 1.2
÷ru.c .c cc_.c (`) 49.2 41.7 20.8 24.3
orc .c ouc.cc (`) 3.4 2.8 4.8 4.9
O.O +º > ocor -,.rco o_. rrrOc
._.. · .::u -¸rO ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
o.rr çr˙ rôcO -,.rO
:.cr ¸c˙ rôe5 -¸rO zo¡+ O÷ec ._ ..÷ º c_
-≥ e.o.O ecc c¸. -_cu ¡.s r _.ccr O.cc.er.O
o¸c. zo¡z O÷ec .ç. ec._ o.ucrc ÷ccO z.º r O
occ cc zo¡+ ç ÷ccO ¡.¯ çrO. o¬ õc. zo¡z O÷ec
†. r._u c¸ucc ÷ç:. ¸:_ ec._ ouc.c _-. ç
c- occ c¸uccO_u ÷ccO s¯ r cc.ccr e..
†.r._u c¸ucc o. ÷: o.ec.:ucu ç †. r._u
o. ccO c..u e:c õc. c-¸õu zo¡+ ç oecr.c
_.c ¸_rrcu ÷cc. .¸u. ÷ç:. -¸rO c¸ucc d÷
rôe5 c˙O¸c erec: ¸c. r_cu.r.ô õc ccc.
zo¡z ç -¸rO ÷c c¸ucc c...c c¸. -_cu !¯¯.¯
r O occ cc zo¡+ ÷¸cc¸5-c Ou õO c¸. -_cu
!¯¡.¯ çrO. O¸¬ o o¸c. -¸reo orc .c r_.
zo¡z O÷ec ç c¸. -_cu +.¯ r O occ :.c.ucc
eO_çce_: cu c_ o¬ o. e:ceOu zo¡+ ÷¸cc¸5-c
zo¡+ Oc.c o.c5cec c¸Oc ¸:_ eO_çc_ ec._
ouc.crcu ÷: o¬ c˙O¸c c¸ucc cçue5 o¬
Oc.u ouc.cc e:ceOu ec._ o.ucrc o¬ o
o¸c -¸õu Oc.ec cec.r.uc r_ .ç. ec._
o.∞ce.u -¸rOO _.. rc .c :¸r Oec ÷ccO es
r c...cr c.◊. ce÷ OOç, ec._ ouc.crcue.
o¬ o. ÷: .c ÷.. ¸Oc r˙., zo¡+ Oc.ec ¸c˙
r._ c˙ce√çec -¸reo r.cc÷..uc erec: c:cc
-_c,.r ÷≥ rcu o¸c.
:.c.ucc cu c_ ..u o¬ o. e:ceOu
orc .c .c ¸ccc O c¸. -_cu ¡.s¯ r ec._
o.∞c. o.∞ce.u ¸Oc rô. ÷: c¸. -_cu +.+ r
ccc.çucr o¸c rô. -¸reo _.c∞ccOc erec:
o:crc e_÷ -_c. o¸c. zo¡z ç c¸. -_cu ¡¯.! rO
c¸Oc orc .c r_. zo¡+ ÷¸cc¸5-c oO÷.uc Ou
õO c¸. -_cu +o.¯ çrO. O¸¬ o.c ÷.. -¸reo
Ocr5 : ..cOc c:c O¸. o¸c.
¸r÷ .c .ç_: c...u er.O÷ ÷..u O.˙rcue.
u e.O. ¸c.O ..eçurc¸Ou ¸uu≥ rco. ÷ç:.
-¸rO õ÷u õe.. ...r._u .c c:÷r5 r.cr
:≥uO. ç o¸c. õõ. O¸¬÷O:u c_u -¸reo .Ω .c
ç5 O_u ÷ccO z¯ rO O¸¬ c...cr ÷Ω :. ...
c˙... O.O÷.c o.c eOc ... r._ec ç _-. ç.
÷ç:. õe.. ¸c.c ..c.cr ÷r÷. o¸c.
79 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rr. c.cc..r
cco.rrr
2011 2012* c,c. 2013* 2013
oΩ ç.∞co (o,. ò_cr) 47,863 53,045 47,176 64,318
ec._ o.∞c. 47,096 52,673 46,343 63,208
ec._ õcç. 29,296 39,142 39,708 51,356
cç. cc.¿ ç.∞co (o,. ò_cr) 17,800 13,531 6,635 11,852
eOuc o.∞c5 767 372 833 1,110
oΩ cocccO õcço (o,. ò_cr) 9,312 7,734 5,681 7,567
cç._ c˙O¸c 4,140 4,077 3,138 4,175
oeurc õcç5 5,172 3,657 2,544 3,392
-≥ cco _.¬c (o,. ò_cr) 9,255 6,169 1,787 5,396
o_r r.occ..r çocr
o.ec.:u (c¸. c_cu) 327,797 312,723 369,850 373,558
c¸ucc (c¸. c_cu) 411,013 457,650 471,470 494,626
.c ÷: occr.c5 (c¸. c_cu) 116,700 155,245 136,177 175,465
orc .c occr.c5 (c¸.c_cu) 2,890 3,469 10,472 7,854
Ocr5 .c cc_.c (`) 2.1 1.21 0.45 0.4
÷ru.c .c cc_.c (`) 38.2 25.3 6.10 13.7
orc .c ouc.cc (`) 2 1.8 7.26 5.0
O.O !o > o.rr çr˙ rôcO -,.rco o_. rrrOc
._.. · :.cr ¸c˙ rôe5 -¸rO ÷: c.:. O..c.c eçc.cce5ucO
¯ erO5cc
Ou õO cc ÷ccO zoz r cc.ccru cu5
c¸. -_cu ¡o.¯ çrO. O¸¬ o o¸c. cOç, :.cr ¸c˙
rôe5 -¸rO ÷cO z¡º r ..-. :._cr ç !,o¯+ r O
c¸c¸_ r.cc._¸c c¸c¸_ r.cc._ ..-. :._cr ç
o¸c occ. o-.¬O oOc¸≥ ¡o cc. -¸r .c Oc.
rc.ec AAA Oc.rc.c cOcO.e.u o¸c. cOç,
-¸rO ÷cO c_cu ¡¯.! r Ou -¸r ..eçurc¸Ou
÷-..Or †Ocu cc. ÷.c.
ccO. rcrrrcrc. ¬.or.o çooç_
e÷O. ucrcrcue. c.cr.c oc.ç_ zo¡+ ÷¸cc¸5-c
Ou õO c_cu ¡o.+ r .Ω ÷...‚r ..5 ÷-..Or
rc.r.ôO cOcO.e.u cu _-u occ c. r._c
c_ ç ÷...‚rcu ¯z,¯oº eçeur ÷ç:. c¸. -_cu
!.¯r :cr5 .ç_ c...cr o.c÷ e.O. o¸c. zo¡z
O÷ec ÷¸cc¸5-c çrO. O.cc. O c¸. c_cu ¡o,o!e
r o.∞c. :. ÷÷uçuc rôe5 ç e.. r._
c˙ce√çc ÷ç:. o.∞c. c¸. c_cu ¡o,ºº! r çrO.
Oc.uc õ o¸c. zo¡z O÷ec ç c¸. -_cu ¡!º.e r O
÷.÷c o.ec.:u c...c zo¡+ O÷ec ç c¸. -_cu
¡¯s.e çrO. ÷ccO e ru Oc.uc õ o¸c.
÷...‚rcuO :. e÷O.ec.:rcuO ∞cr .ç_
õç.c -¸r r.c :c:. oc.ç_O e.oe5 c:÷r.
cΩ_ rccu zo¡+ O÷ec ._ r.cc cu c_ ç
_r. -¸rO :. er..c._ -¸rOO o.ccO .::u
-¸rO, :¸Ou u¸.u_ -¸rO ÷: ÷5cc -¸rOO
ç c:÷r5 O..cc rcu _ç. ÷...‚rcuO ∞cr
.ç_ cr †ur c_ _-. .¸ue5 c:÷r. o¸c
rccu oc.ç_ õ÷u ∞cr .ç_ r¬ucu e.õe5
r.cr zo¡+ ..cc ¡ ∞ ÷O o.c5c re_c. cOç,
÷..‚rcuO :c „õc cr.. :cr. zo¡+ :u ¡
∞ ÷O rc.c.r Ou c˙† c¸. ¯o,ooo ÷O c¸. ¡oo,ooo
çrO. O¸¬ rcu _ç.
80 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
oΩ ç.∞co (o,. ò_cr) 13,371 13,488 10,994 16,351
o.ec.:u o.∞c. 13,127 13,229 10,819 16,088
eOuc o.∞c5 244 259 175 263
.ç. o.∞c. 13,230 13,322 10,906 16,160
oΩ õcçO (o,. ò_cr) 993 1,174 834 1,330
e.e:c5 õcç5 699 766 542 867
÷...‚r õcç5 294 408 292 463
cç. ç.∞co (o,. ò_cr) 12,237 12,148 10,072 14,830
c-∞ c,˙c c,r _.¬c (o,. ò_cr) 12,571 14,130 10,422 15,017
o_r r.occ..r çocr
÷...‚r oc.ç_ ec._ e.o5 3,695 4,190 - 4,633
_.c.. 8,622 9,777 - 10,038
.Ω ec._ :. _.c.. ouc.cc % 10 10 - 9.5
rr. c.cc..r
2011 2012* c,c 2013* cco.rrr zcI+
.Ω o.∞c. (c¸. c_cu) 17,208 25,644 24,479 32,957
.Ω õcç. (c¸. c_cu) 11,773 19,781 17,711 23,349
.ç. o.∞c. (c¸. c_cu) 4,215 4,235 4,182 6,149
O.O !¡ > ccO. rcrrrcrc. ¬.or.o çooçc_ o_. rrrOc
O.O !z > c _.r. oro< c.cO.co o_. rrrOc
uQ,dY% ( fiajd kshqla;slhskaf.a Ndrldr wruqo, iy rdcH jHdmdr fomdr®;fïka;=j
* flgqïm;a
uQ,dY% ( Y%S ,xld rlaIK ixia:dj iy rdcH jHdmdr fomdr®;fïka;=j
* flgqïm;a
oro<c
. _r. cr.. ÷÷..O
. _r. cr.. ÷÷..O zo¡+ O÷ec cec.r.uc r_
ç_ O.˙r o.∞c. O c¸.c_cu z+,¡ºs ÷.. ÷÷uçuc
rôe5 ç .c O ..÷ º r r._c c_ c¸.c_cu ¡¯,!+¡
r O ç_ O.˙r o.∞c.r cu5 ÷ccO e¯ r c...cr
¸cc.e.u o¸c. cu5 Oc.ec cec.r.uc r_ .ç.
O.˙r ¸c¸c5O_ c¸. c_cu ¡º,¡¡s r c...ecu
c¸. c_cu ¡+,o¯e r ¸cc.e.u o¸c. ç_ O.˙r o.∞c.
÷ç:. ÷ccO +e.¯ r „õc cr.. o.ecu ç ÷ccO
e+.¯ r ÷...u. cr.. o.ecu ç ∞cr õ o¸c.
Ocr5 c...c ÷¸_r õO õ.._c. cr.. o.ccuc
Ou . _r. cr.. ÷÷..O cr.. O.˙r o.∞c.
÷¸_r õO eçOu ÷..uec cOc.
. _r. cr.. ÷÷..O zo¡+ O÷ec ._ ..÷ º r r._
c˙ce√çc c_ ç c¸.c_cu ¯,º¡¯ r o.ec.:u o.∞c.r
O.cc. rc o¸c occ cc ÷.÷c o.∞ccu ÷ccO +¯ r
c...cr Ou occ zo¡z O÷c :. ÷÷uçuc rôe5
cc cOcr
c_er.
zo¡+¡! Oc.ec ._. cec.r.uc Ou c¸. c_cu s,eoº
÷.. ÷÷çu õO c_er. o.ccuc zo¡+.oº.+o †euu
oO÷u Ou ._. Oc.ec ._ ..÷ e ÷ç:. c¸. c_cu
+,e!¯ r o.∞c.r ¸cc. o¸c occ ¸uO cOcu.
e.e:c5 ..O. ouO ÷...e5 -_.ec.ec.cc ¸_rr
rc. _.. õc :¸r eo ç¸c oõu.ccc. o.ccuec
c˙c._u ÷: õr”e5 ÷: e-∞ :¸ôe5 õcç5O_ O¸¬
o. e:ceOu zo¡+.oº.+o u oO÷u ..÷ e r r._c c_
† ÷ccO zs r Oc.ucr ecuu5 rcc. ÷÷..O
eeçurO ç_ O.ecu c¸. c_cu +¡ r :cr5 e.o.r
÷≥ rcu _-c.
81 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
.Ω o.∞c.O õcç5 ouc.cc ÷ccO ¡oz çrO. O¸¬
o o¸c. zo¡+.o+.+¡ †u Ou õO c¸Oc eu.ccO -¸r
.c e..c zo¡!.o+.+¡ †u Ou õO c¸. c_cu ¯sz ÷O
c¸. c_cu !so çrO. o¬ eo c¸c oecr.. r_c r˙
÷¸r÷e5 cuc c_ ç .¸u.O ogcu _-. .c .c
e:ceOu c. e..c zo¡+.oº.+o †u Ou õO c¸. c_cu
e!¯ çrO. O¸¬ o o¸c.
r˙ crc rôe5 ...÷..u ¯s u ¯¯ r. e..ou
õ÷u c._uc rcu _-u ÷ccO_O c.c ç o¸c occ
cO.ec e÷Oc r_ r.cc ..¬_c rc..uc.._.O_
÷: re.cec rOccO_ ec.çO. o¸c occ c e:ceOu
r˙ crc rô. ÷ç:. .÷rO c¸. c_cu +.s r o.cc
õcç.r ¸ô.O ÷≥ o o¸c. rc..uc.._. O¸¬ †c.
rô. ÷ç:. _-. .c cec. c_cu ++.¯ r e¬u..cr
.c c.õc.er.O rc..uc.._. ÷ç:. cuc c_ ç
e.u o¸c occ cO.cu ÷ccO +o r c.. ¸uO.c
Oc.cO _.. o o¸c.
:.cr c. ÷5cc ÷Oc.u ..¬_c
O¸¬ r˙ c...cr _-. eçu c_eçuu z,ooo r
:÷e._c.eOu o.ucuc r˙.O rOcc rô.
O.O > !+ cc cOcr ç.ccc o_. rrrOc
rr. c.cc..r
cco.rrr
2011/12 2012/13 c,c 2013* 2013/14
ç.∞co (o,. ò_cr) 5,428 6,489 3,645 8,609
r˙ u.c.çu oe_õc 5,263 6,385 3,630 8,577
eOuc o.∞c5 167 104 15 32
õcçO (o,. ò_cr) 5,673 7,356 3,715 8,549
-≥ cco _.¬c (o,. ò_cr) (245) (267) (70) 60
cr.ccO -,.r <c (o,. ò_cr) 642 582 645 480
o_r r.occ..r çocr
r˙ crcO (_Oc c_cu) 68.5 69.2 36.7 75.0
ç.∞co (o,. ò_cr) 1,232 1,219 1,135 1,409
õcço (o,. ò_cr) 982 1,191 1,097 1,359
-≥ cco _.¬c (o,. ò_cr) 250 28 38 50
cr.cc O -,.r <c (o,. ò_cr) 128 1,005 1,057 1,055
o_r r.occ..r çocr
c_r˙ (_Oc `ooo) 2,868 3,442 5,620 4,130
c r˙ (_Oc `ooo) 635 684 545 739
r˙ u.c.çu (_Oc `ooo) - 407 309 384
ec... (÷-..O `ooo) - 469 538 589
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*flgqïm;
e:ceOu zo¡z Oc.ec :.cr c. ÷5cc ÷Oc.u
..¬_ec c_r˙ u.c.çuc O¸¬ o o¸c occ c
e:ceOu zo¡z ç _¸- .Ω o.∞c. c¸. c_cu ¡,z¡º
zo¡+.oº.+o †u Ou õO c¸. c_cu ¡,¡+¯ r çrO.
÷ccO z! ru Oc.uc o o¸c. c e:cO u÷. Oc.c
oO÷.uc Ou õO -_.ec.ec.cc O c¸. c_cu +o r
_.cc c¸. c_cu ¯o c...c çrO. O¸¬ eOc¸c
oecr.. erec.
o.ucuc rcu _ç c_eçuue. u¬cc rOcc
÷ç:. oO.. c...u õcç5 ¸ô.O ogcu .c
_-. .¸u. e:ceOu c¸. c_cu ¡,oo¯ r O -¸r
.c e..c c¸. c_cu ¡,o¯¯ çrO. O¸¬ o o¸c.
r˙ .Ocu o.ucuc rôe5 O..c·cc cOec cO
o.ccO c_eçuu z,¯oo r 1÷e._c.eOu o.ucuc
rô.O uccc occ zo¡! Oc.ecç o.ucu rOcc
oO÷u rô.O ucccc.
Occ..uec o¸c o o¸c eç.c r˙ c˙ec.:u
¸_ge5 Oc.uc c_er. ÷: c. ÷5cc ÷Oc.u
..¬_c cu o.ccu eçer: O..c.c Oc.uc rô.
÷j:. _ç e:.j eO_jec._ oO÷..Or e_÷ ÷¸_rc
:¸rc.
82 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
. _r. c.:. :.. ÷÷..O
c.:. :.. ÷÷..O †Ocu cc. õ÷ô o¸c :÷÷_ +o
ru ÷.uõc Ou occ .Ω o.∞c.O c: ∞crcOc
÷ccO ze r Ou occ ÷ccO ¯! r ∞crcOcr e÷-.
e÷O. eçc.cce5ucO eOc :.. ÷¸cc. ..u
_¸e¬. zo¡+ O÷c ÷ç:. oecr.c .Ω o.∞c. O c¸.
c_cu z¡,!z¯ u ÷¸cc¸5-c .÷ Ou õO ¸cc.e.u
o¸cec ÷ccO e¡ c..r Ou occ zo¡z O÷cO
÷.ecr.O e÷-. e÷O. eçc.cce5ucOO :..
÷¸cc. ÷ccO ¡¯ ru o¬ o. e:c o ce¬. zo¡+
O÷ec -¸r ÷ç:. eu.ccO .c ÷¸_rc cc o¬ o.r
ecuu5 rcu _-u occ cc ÷¸cc¸5-c o. Ou õO
c¸. c_cu ¡,¯+º r e_÷ O.c.. eo. zo¡z O÷ec cc
c¸. c_cu ¯,sº¯ r õc. . _r. c.:. :.. ÷÷..O
c: ...r._u ¸_rr ÷cc. .ucu ÷.u occ
O..c.c e.e:c5 rOcc O..cc rô.O :÷÷_ + r
÷c O..c.c :._cO cr rc o¸c. ere÷ OOç, e÷-.
e÷O. eçc.cce5uceo :.. oO..c.O :. :..
o¸uO5 rô. occ o¸c eu..¸_c. e:ceOu c_∞c
:.. ec.. r_.u.rc.ec: :. oO..c.OcO O¬.
o.ucuc rôe5 .¸OΩ .c o ce¬.
. _r. c.:. :.. u.c.çu ÷÷..O
c.:. :.. u.c.çu ÷÷..O cccOecu ¸:_
..Oe5 :.. Oc. eo r u.c.çuc rcu occ
Occ..uec e÷-. e÷O. eçc.cce5uceo :..
oO..c.Oecu ÷ccO ¡¯ c - zo c occ c...cr
O.O !! > cc+-. ç.ccO çcr O..c.oO_ o_. rrrOc
rr. c.cc..r
2011 2012 c,c 2013* 2013
o
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ç.∞co (o,.ò_cr) 17. 375 20,215 13,258 21,427
õr.5-e÷.e÷.eç. 12,569 15,938 10,109 16,894
õr.5-c..:.u.÷. 4,806 4,277 3,149 4,533
õcçO (o,. ò_cr) 16,899 19,747 12,276 20,915
_.¬cç_.¬c (o,. ò_cr) 418 468 471 512
-¸r ÷ç:. eu.ccO .c (c¸. c_cu) 4,717 7,897 1,739 2,397
e.e:c O :÷÷_
÷-..O
25 25 29 30
o
.
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+
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.
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r

c
.
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O
.
O
ç.∞co (o,.ò_cr) 1,432 1,414 1,516 1,798
õr.5-e÷.e÷.eç. 1,006 1,001 1,113 1,361
õr.5-c..:.u.÷. 426 412 8 10
÷·: oe_õc - - 395 427
õcçO (o,. ò_cr) 1,187 1,298 1,137 1,328
-≥ cco _.¬c (o,. ò_cr) 245 116 288 170
-¸r ÷ç:. eu.ccO .c (c¸. c_cu) 168 148 191 298
uq,dY%h( rd'T!'kS'i'$ rd'T!'ks'i' iy rdcH jHdmdr fomdr®;fïka;=j
*flgqïm;a
cc+-.
÷¸cce5 uccO ÷.. zo¡e O÷c Ou õO e.e:c5
rOcc cOc.uc rccu c: eO_çc_ ÷:c..cOc
Oc.uc rô.O ccOc e.u ce¬.
c.:. :.. u.c.çu ÷÷..O c: õr.5 Oc.uc
rc .ucu zo¡+ Oc.ec ÷¸cc¸5-c .÷ Ou õO
o.ccuec ¸_rr.c o.∞c. O c¸. c_cu ¡,¯ºs u
÷ccO s! r ÷cc.e.u o¸c. ÷÷..eo .Ω o.∞c.
÷ccO ¯+ r e÷-. e÷O. eçc.cce5uceOu ç ¸c˙c
Ou ÷ccO z¯ r o.∞c. ÷·: oe_õc ..u ÷: c.:.
:.. ÷÷..OO oe_õ rô. c_u _-.e.u ce¬.
-¸r ÷ç:. eu.cc O .c ÷ccO zº ru O¸¬ o o¸c
occ õr.5 c...c O¸¬ o. ÷: o.¸O. c˙O¸c ¸:_
c.. e:ceOu zo¡z O÷ec c¸. c_cu ¡!s r O -¸r
÷ç:. eu.cc O .c zo¡+ Oc.ec c¸. c_cu ¡º¡ çrO.
O¸¬ o o¸c.
O÷c z¯ rO O¬. c¸c◊ cuc ÷cO_ u¬cc c˙O¸c
¸:_ c.., e.e:c5 c_∞cc.O o¬o. ÷: .-¬.
c:÷r5 ÷cc o. e:ceOu c.:. :.. u.c.çu
÷÷..OO ÷.÷c :.. ¸_g. ÷cc._c eu.:¸r o
o¸c. c.:. :.. u.c.çu ÷÷..O eeOç. O·ccrcu
:. c.˙ec..r :uc.O ÷ç:. rcu _ç ...c.r
:.. c.õcc c_-çO ¸uOc rôe5 O¸¬÷O:u c_u
u.c.çu oe_õc O¸¬ rc .¸u.O rOcc rc ce¬.
÷÷..OO ...r._u O..c.c ÷¸_¸÷. cOec c:
c.c_ c:÷r5 ÷Oc.uc rô. c_u :uO.˙ ÷O
÷¸cc¸5-c çrO. e.e:c5 rOcc Oc.uc rô.O :¸r
o o¸c.
83 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
cc.cc.o
çc_õc c. c-∞ c,ôO
÷..÷:c _r. ÷ec.÷ o.ccuc
eO_ç÷¸_ z¯! ru ÷.uõc c:cO occ ÷c˙
eO_ç÷¸_ :._cru cc ÷..÷:c _r. ÷ec.÷
o.ccuc eOe_çec.e_u ÷ccO z¯ r c...cr
occc rce.u ÷.c. zo¡+ ecOu r.ccO oO÷.uec
ç, zo¡z Oc.ec c. r._ ÷..O :. ÷¸÷çe5 ç .Ω
o.∞ce.: ÷ccO ¡s r ÷õe.. Oc.ucr ecuu5
rr. c co. rOr
2011 2012*
c,c zo¡+¯
2013
ç.∞co (o,. ò_cr) 16,633 20,661 18,304 24,368
õr.5 16,551 20,548 18,199 24,255
oeurc o.∞c5 82 113 105 113
oΩ c˙O,c (o,. ò_cr) 16,554 20,614 17,676 23,570
-≥ cco _.¬c(ç_.¬c) (o,. ò_cr) 79 47 628 798
O.O !¯ > _.r. ccr.c ç.crrcc o_. rrrOc
uq,dY%( ,xld if;di wdh;kh iy rdcH jHdmdr fomdr®;fïka;=j
* flgqïm;a
uq,dY%( ,xld fmdfydr iud.u" fld<U fldur®I,a fmdfydr iud.u iy rdcH jHdmdr fomdr®;fïka;=j
* flgqïm;a
O.O !» > cc.cc.o co..OO_ o_. rrrOc
rc o¸c. õr.5 o.∞ce.: ÷ccO ¡s r Oc.ucc
o.∞ce.: ÷ccO z! r Oc.ucc e.. .Ω o.∞c5
Oc.uc ÷ç:. e:c o o¸c. ere÷ OOç, zo¡z ç
c¸. c_cu +¯ r O _.ccO ÷.ecr.O zo¡+ ecOu
r.cceo oO÷.uecç ç_ _.c ouc.cc o.÷uu
O.ecu ÷ccO ! ru O¸¬ o. e:ceOu _.cc
c¸.c_cu ezs r çrO. Oc.uc o o¸c. e.. Oc.uc
eOu÷r5 †. r._uO c.˙ec..r ¸_g. cOcO.
.¸u. ÷ç:. c...Oc ç cuu c_-çO _r. ÷ec.÷
o.ccuec oO..uc ec.. õc ccc.
rr. c.cc. .r
c co. rOr
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2011/12 2012/13
c,c 2013*
2013/14
_
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r
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c
c
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ç.∞co (o,. ò_cr) 2,763 2,559 1,049 2,712
c..u O..c.cc 2,496 2,450 1,033 2,501
oeurc o.∞c5 267 109 16 211
õcço (o,. ò_cr) 2,619 2,426 1,001 2,614
._. c˙O¸c 37 54 20 70
_.¬c(ç_.¬c) (o,. ò_cr) 144 133 48 98
c.õc cr <c (o,. ò_cr) 82 135 234 110
oocc cc.cc.o
ccr...oc (o,. ò_cr)
19,936 19,215 3,102 18,430
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õcço (o,. ò_cr) 807 880 513 900
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-≥ cco _.¬c (o,. ò_cr) 265 152 13 446
ec.e:.c o.ucuc (e..eO.u ooo) 155 170 0 187
84 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
_r. ec.e:.c ÷....
o e..ou eOc _-. eçu ÷.÷c ec.e:.c
÷:u...cecu ÷ccO e¯ r c...cr o.ucuc
rô5, c. rô5 :. e-∞ :¸˙e5 rOccO_ _r.
ec.e:.c ÷.... uc¸_ ÷.c. zo¡+ ocO¸c rc.eOu
oO..c.c r_ c˙† c÷,:_c :. ee:O õõ.cOcO
÷≥ Ou o:crc -_c,5 ..:¸co. ÷ç:. r.-ur
ec.e:.c c.õcc †˙.¸uo.O rOcc r_ cc OOç
_r. ec.e:.c ÷....O e.ecr r.-ur ec.e:.c
÷¸cce5 O..c.˙r rOccO_ uc¸_e5 :¸rc.O _¸-
eu..¸c.
_r. ec.e:.c ÷.... õ÷u zo¡+ c_ ruuec ç
e..eO.u eº,ezz r ec.e:.c c...cr e-∞ :¸c
o¸c occ e.c .Ω ec.e:.c ÷:u...c c...ecu
÷ccO e¯ r. e.: ccc_cr e_÷ e..eO.u ¡z,ze!
r oc˙rc ec.e:.c ÷¸cc.r eOueOu c¸. c_cu
¯e¯ r ocecr õcç.r ¸ô.O c:cO ÷≥ õc. ere÷
OOç, ÷¸-, cccOc c_ o¸c¸5 ceç.cu : c¸Oc
ec.e:.c :.c e.. ec.e:.c e-∞ :¸˙e5 rc.O_c
r.Oc rôe5 o¸c O¸ç.cr. ecuu5 rcc. zo¡z¡+
._. Oc.ec ouc,c r._c˙ce√çc :. ÷¸÷çe5 zo¡+
O.O !¯ > ooc cr O.Oc.ccr c O.oor O.or. ç†˙cr rôo
÷¸cc¸5-c .÷ oO÷.uec ç _r. ec.e:.c ÷...e5
.Ω o.∞c. c¸. c_cu ¡,o!º r çrO. ÷ccO ¡s ru
o¬ o o¸c occ c e:ceOu ÷...e5 _.cc ÷ccO z¯
ru c:c O¸. o¸c.
er._. er..c._ ec.e:.c ÷....
er._. er..c._ ec.e:.c ÷.... ce. .Ω ec.e:.c
oO..c.Oecu ÷ccO +¯ r ÷ccu occ .Ω ec.e:.c
o.ucuecu ÷ccO z! r o.ucuc rcc. zo¡+ c_
ruuec ç ÷.... õ÷u e-∞ :˙u _ç ec.e:.c
c...c e..eO.u. +e,oºo r O occ cc .Ω ec.e:.c
c...ecu ÷ccO +¯ r. e...u ÷¸_÷5.c cc
c...c O..rô. ÷ç:. oO..O c- ec.e:.c
c...cO O¬. e..eO.u e,+¯¯ r oc˙rc ÷¸cc.r
eOueOu c:cO ¸˙.O ÷≥ O oc˙rc õcç. c¸.
c_cu +º¯ r. ec.e:.c e-∞ :¸˙e5 rc.O_ec o¸c
o¬ c.¬ .. :cO. .¸u. ÷ç:. ec.e:.c e-∞:¸ôe5
rc.O_c cO≥cOc r.Oc õc cc -O cu c¸:¸†_ eo.
.Ω c˙O¸c ÷ccO ¡¯ ru O¸¬ o. e:ceOu zo¡z¡+
eçOu r.ccO :. ÷¸÷çe5 ç zo¡+¡! eçOu r.cceo ç
÷...e5 _.c∞ccOc ÷ccO s+ ru o¬ õ o¸c.
O.O÷.c 2009 2010 2011 2012
1 _r. -¸rO
2 .::u -¸rO
3 :.cr ¸c˙ rôe5 -¸rO
4 c.:. ¸r÷ :. o.ec.:u -¸rO X
5 uO.÷ ÷Oc.u :. ._. ÷÷..O
6 ÷..÷:c _r. cc ÷Oc.u -¸rO
7 c.eç.c ÷Oc.u -¸rO
8 ÷..÷:c . _r. ¸c˙ rôe5 -¸rO
9 e÷O. ucrccue. c.cr.c oc.ç_ ..¬_c X
10 . _r. cr.. ÷÷..O
11 :.cr cr.. c.c oc.ç_ X X
12 _r. õ≥_ -_ ..¬_c X X
13 _r. -u: ec_ ÷÷..O X X
14 . _r. Oc.c o.r.˙c X
15 :.cr :_ ÷5cc :. :_.cO:uc ..¬_c X X
16 ÷..÷:c .Ou ec.Oec._ :. .Ou e÷O. (. _r.) ÷....
17 ÷..÷:c ._ru cc.c_cu÷ ÷....
18 c:u _r. ÷.... X
19 . _r. ..u. ..u ..¬_c X X X X
20 c.:. ¸‚euc¸ ÷÷..O X X
21 ¸‚euc¸.c r.cccu c_-j .... ¸ceç.r r.cc..c X X
85 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
22 c.:. ÷Oc.u :. uc... uc.c ÷÷..O X X
23 c_er. cç._r ÷....
24 :.cr c. ÷5cc ÷Oc.u ..¬_c X
25 _r. .Oc ÷÷..O X
26 _r. .Oc Oc.c u.c.çu uc.c ÷÷..O X X
27 c.:. :.. u.c.çu ÷÷..O X
28 . _r. o.cceoç :.. ÷÷..O X
29 c.:. :.. ÷÷..O X
30 . :cOc.ucc .: ec.:_ X
31 ÷O..u c,cO.:u :._c
32 . _r. c,cO.:u ÷÷..O X
33 . _r. .Ou õ≥_ ÷÷..O X
34 ÷..÷:c _r. ec.e:.c ÷....
35 er._. er..c._ ec.e:.c ÷....
36 c.:. ¸O ÷÷..O X
37 ÷..÷:c c.:. O.◊: uc.c ÷÷..O X X
38 e:.eO_ ¬Oe_.cc÷ _r. ÷....
39 ÷..÷:c _r. ÷u ÷.... - - - -
40 ÷..÷:c _r. ÷ec.÷ X X X X
41 ÷Oc.u e_.cdc ..¬_c X
42 :.cr e_.cdc ..¬_c X
43 ÷..÷:c _r. -◊: O¸_ ÷....
44 ÷..÷:c _r. ec.÷ec. ÷....
45 c.:. .¸. uc.c ÷÷..O X
46 . _r. ocucu .c cr.. ÷÷..O X X X
47 r·.r.ccr :. e..õ:u cr.. ..¬_c X X X
48 . _r. c.:. O¸õ_ ÷÷..O X X X X
49 ÷..÷:c rc¸.,._ O¸õ_ ÷....
50 :uc. Oc ÷Oc.u ..¬_c X X X X
51 ÷..÷:c :_.Oc O¸õ_ ÷....
52 ÷..÷:c rΩe-.õ.c.u ec rc..uc .._.O X
53 . _r. r: ÷÷..O X
54 . _r. :÷c rc..uc ..¬_c (_r÷_) X
55 ÷..÷:c r:O.: r¸cc. _r. ÷....
uq,dY%( rch i;= jd◊c jHjidhka yd rdcH jHdmdr fomdr®;fïka;=j'
O.O÷.c 2009 2010 2011 2012
86 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O !s > ooc cr O.◊o O.Oc.ccrc.r _ç çc¬.o_.¬..c ç.∞co
2002 2006 2007 2008 2009 2010 2011 2012
2013
c,c
occ.c
- 1,316 1,434 1,279 4,471 4,524 10,379 13,562 6,166
:.cr ¸c˙ rôe5 -¸rO
- 810 1,060 1,060 1,750 2,312 4,560 8,260 3,060
c.:. ¸r÷ ÷: o.ec.:u -¸rO
- 116 25 - 50 - - 25 -
c.eç.c ÷Oc.u -¸rO
- 46 50 40 144 55 - 500 250
c.:. ¸O ÷÷..O
- 75 150 75 50 10 75 50 40
c.:. :.. u.c.çu uc.c
÷÷..O
- 25 30 40 30 85 59 20 20
:.cr cr.. c.c oc.ç_
- 2,250 2,000 3,495 4,200 2,250
. _r. Oc.c o.r.˙c
- 115 65 - - - - - -
_r. õ≥_-_ ..¬_c
- - - - - - 2,000 - -
eOuc ¯
- 129 54 64 197 62 190 507 546
_.c..
435 3,585 4,014 2,966 4,219 6,867 14,183 13,987 9,146
_r. -¸rO
- 1,173 846 1,046 1,346 2,923 4,020 5,346 3,596
.::u -¸rO
- 668 1,416 816 1,139 3,253 4,500 4,658 1,816
. _r. eO_er.5 ÷....
300 670 893 893 893 223 536 759 759
¬ _.c, _r. cç._r ÷....
20 - 100 100 38 - 68 42 43
_r. -u: O¸_ ÷....
- 98 50 34 60 35 500 1,700 -
_r. ¸u¬÷.c_ ÷e.. ÷....
11 20 62 31 31 31 31 47 54
÷e_.u eceO._c5 ÷eO.ec–
Occu_ ÷....
- - 438 - - - - - -
.Ou ec.Oec._ :. .Oue÷O.
÷....
- - 100 - 200 - 2,406 - 250
eO÷. er.÷. cOc cç._r ÷....
- - - - 392 - - - -
_r. õ≥_ ÷....
100 100 75 - 300 - 75 75
O¸õ_ ÷...5 ¯¯
- - - - 30 - 212 179 116
. _r. cr.. ÷÷..O
- - - - - - 1,750 1,001 2,199
. _ru ÷....
- 788 - - - - - - -
eOuc ¯
4 68 34 46 90 102 160 180 238
orrO
435 4,901 5,448 4,245 8,690 11,391 24,562 27,549 15,312
uq,dY%( NdKavd.dr fufyhqï fomdr®;fïka;=j iy rdcH jHdmdr fomdr®;fïka;=j
* iajdëk rEmjdyskS cd,h" cd;sl f,d;/hs uKav,h" Y%S ,xld rEmjdyskS ixia:dj" rdcH T!IO kS;s.; ixia:dj" ,xld wmkhk
rlaIK uKav,h" ,xld fmdiafmaÜ iud.u" ,xld f,a,kaâ iud.u" isf,daka wef.%da bkaviaá%ia iud.u" fld<U jd◊c fmdfydr
iud.u" mrka;ka flñl,a iud.u" rlakd wrlaIl ,xld iud.u" ,xldmq;% ixjr®Ok nexl=j" cd;sl ixjr®Ok nexl=j
¯¯ y,dj;" lΩfndaúáhdk" we,alvqj" l=reKE.," kuqKql=," lE.,a," w.,j;a;" n,kaf.dv" jgj," fydrK" we,amsáh iy
mqiaie,a,Ej wd° jeú,s iud.ï
o,.ò_cr
87 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
ç.oOrc
ç.oOr Oo.rc
zo¡+ Oc.ec c_. ..÷ uOc :_ ç . ¸r.eo .c:
o.c.r Oc.u eo.c ÷ccO e.º r O o:c zo¡z
Oc.ec c. r.¸ ÷..O :_ ç o.c.rc ÷ccO e.+
ru Oc.uc õc. eç.c :. e..¸c o.c.rec o¸:
O oc-çr.ô :::Ocu e::eOu .:. ç.O ÷≥ O
ocec..cu :.eo OOç, o.c.r Oc.uec o¸: O
c.:c ::Oc¸ rccu e÷O. ÷: rc..u: o.cue.
o-.¬O o¸: O ÷¸¸rc c: Oc.uc o.c.r Oc.uc
erec: c:c: -¸c,.r o¸: re_c. c ouO, zo¡z
Oc.ec .¸çc..c :_ ç o¸: O o¬ Oc.uc .r:.:O
.. :cO. .ucu, zo¡z Oc.ec eçOu r.c:O ÷:
:uOu r.c:O :_ ç ÷ccO e.! r ÷: ÷ccO !.s r
O Oc.u eo.cO ÷.ecr.O, c_eO¸u, zo¡+ Oc.ec
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88 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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89 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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90 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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÷:u O¸¬÷O:u, c. ÷5c: ¸c o.ec Oc.uc
÷ç:. e:: õc.
91 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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∞cr õc.
92 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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93 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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94 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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-¸c,. e::eOu e÷O. o.ecu ÷ccO ¡º.¯ r
O eç.c eO_ç e÷O. o.c zo¡z Oc.ec ouc,c
r.¸ c˙ce√çec O.c:. r_ ÷ccO e.¯ r Oc.ucO
÷.ecr.O zo¡+ Oc.ec .¸ ..÷ uOc :_ ÷ccO e.º
r r¸c eceuu Oc.ucr ¸-.e.u o¸:.
:Oç, eç.c o.c.rc :. e..¸c o.c.rc c..
:::OcO c:o. e::eOu zo¡+ Oc.ec eçOu :.
e:Ou r.c: :_ ç o.ucu eO_ç e÷O. c_eO¸u
÷ccO ¯.º ru :. ÷ccO º.¡ ru ç ocucu eOe_ç
e÷O. c_eO¸u ÷ccO +.s ru :. ÷ccO ¯.¯ ru
ç Oc.uc o o¸:. e.. Oc.uecu o¸: O c:c:
-¸c,. e::eOu, zo¡+ Oc.ec c_. r.c:O :_ ç,
eO_ç :.c cΩ¸o. c.¸uc rô. ÷ç:. zo¡¡ Oc.ec
o. c..ec ç rc.:.r r_ c.:. .¸. ÷: .ç¸
c:c:: rc...c.O¸ c÷r.¸u -¸c,. e::eOu
o.ucu eO_∞. ÷ccO e.¡ ru ÷er.Duc oe.u
÷: ocucu eO_çc¸O¸ o¸: O o÷..Occ.Ocu
:. oc:c: r.¸.◊r :::Oecu o¸: O -¸c,e.u
c..u r·.r.ccr ec.. u.c.çu o¬ o. e::eOu
ocucu eO_ç e÷O. ÷ccO ¯.¡ ru ÷er.Duc
oe.u o¸: O oc:c: -¸c,. .. :cO. .¸u.O
:¸r õc. e.. :::Ocu cOe:, zo¡+ Oc.ec c_.
..÷ uOc :_ ç c..u O.ecu o.:.c :. c.u
Oc. o.ucuc ÷ccO +.+ ru O¸¬ o. e::eOu
c.˙ec..r c..¬ o.ucuc ÷ccO ¡.s ru O¸¬
o o¸:. õe..ecu. ec†c_ o.ucuc ÷ccO s.e
ru :. ec.e:.c o.ucuc ÷ccO +e.s ru o¬ o.
e::eOu o:c.¸† c..¬ o.ucuc ÷ccO o.+ ru o¬
o o¸:. ere÷ eO::, ¸†rô5 rOc: ÷ç:. erecu
o.ec.:u O¸¬ o. e::eOu e.. r.¸ c˙ce√çc :_
ç cu: ÷: :. ¸crc. o.ucuc ÷ccO e.o ru :.
e..¬u¸.¸ o.¸O. o.ucuc ÷ccO ¡!.! ru
O¸¬ o o¸:.
95 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O ¯o > ccO. ç.ccc cr.o..r çocrcr
çocrc
2009 2010 2011 2012 2012
orc,c
2013
orc,c.
(ç)
Oo.c ccO.
c¸c◊ u¸o ÷-..O 4,456 4,067 4,358 4,178 3,127 2,965
e.e:cOu ¸ç .Ω c..¬
(e..eO.. `ooo)
48,777 61,240 65,097 65,030 49,056 49,666
e.e:cOu ¸ç .Ω -:.Ω5 (TEU '000) 3,464 4,137 4,263 4,187 3,152 3,223
c:u¸o.: rô5 (TEU '000) 2,633 3,205 3,216 3,167 2,294 2,401
õ≥_ c.cçc ç.cc
÷..Oc ≥cr.u (÷-..O `ooo) 3,435 3,534 3,608 3,449 3,441 2,732
:.. ≥cr.u (÷-..O `ooo) 13,950 17,247 18,319 20,324 19,637 20,235
d:¸u c:: ≥cr.u (÷-..O `ooo) 2,563 2,638 2,667 2,450 2,455 1,666
ou:c:.¸ :. õç.: :¸c¸¸ ..:rcu
(`ooo)
240 280 359 423 1,238 1,694
cc+-. ç.cc
ecç.¸r ec.:¸ 220 172 186 197 186(o.) 202(o.)
c:ec ec.:¸ 555 568 592 593 593(o.) 603(o.)
o¸çu ÷-..O (c:ec) 68,905 69,501 69,731 73,437 73,437(o.) 74,636(o.)
eeOç.Oc¸u ÷-..O (c:ec) 15,930 16,492 18,299 18,252 17,129(o.) 17,553(o.)
e:†cu ÷-..O (c:ec) 25,549 27,494 29,234 30,217 30,136(o.) 30,928(o.)
o_. ç.cc
-¸r ..-. ÷: oeur: e÷O.
...÷..u
5,703 5,927 6,184 6,375 6,274(o¸) 6,452(o¸)
.c r.tc: (rc.r.ô) 840,509 778,544 862,352 952,256 874,109(o¸) 910,705(o¸)
¸c.c†c .¸. ÷...5 35  36 39 47 44(o¸) 47(o¸)
¸c.c†c r¸-≥ ÷...5 21 21 16 13 13(o¸) 11(o¸)
c.o.or ç.cc
c¸c◊ ÷D.cr ÷-..O 447,890 654,476 855,975 1,005,605 693,772 801,210
÷D.cr ¸c¸c5 (o¸.e¬.. c¸cu) 350 576 830 1039 711 883
e:.O¸ r..c u¸O:5 ouc.:c 48.4 70.2 77.1 71.2 69.1 ¸¸.eu..
cO.cr ccO. (çgrr _c.c†.o rôO)
-÷ c. 649 2,491 4,248 3,095 2,645 1,341
e..Oc r.c 5,762 23,072 57,886 31,546 26,890 20,450
e¸.˙ 8,225 11,845 14,818 12,266 9,575 3,990
c:c¸ c¸† 135,421 204,811 253,331 192,284 154,714 124,091
:ec.ç c. 37,364 85,648 138,426 98,815 74,853 64,459
O¸rOc 13,951 17,363 20,073 18,450 16,929 9,692
uQ,dY%h( Y%S ,xld uy nexl=j
^w& ;djld,sl ^wd& cqks ui wjika †kg ^we& wf.daia;= ui wjika †kg
TEU = wä 20 iudk nyÆ tall
96 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
uQ,dY%h( Y%S ,xld ixpdrl m%jr®Ok wêld˙h
O.O ¯¡ > c.o.or ç.ccc r.occ..rc
c.o.orcrc. c,ò”o c.o.or çc,cO (ç,.c... ò_cr)
o.cc 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
:uO.˙ 38,468 50,757 74,197 85,874 97,411 30 44.7 70.5 88.5 107.2
ec-cO.˙ 34,169 57,300 65,797 83,549 93,232 26.7 50.4 62.5 86.1 102.5
..c: 34,065 52,352 75,130 91,102 98,155 26.5 46.1 76.2 93.8 108.0
oec¸ 26,054 38,300 63,835 69,591 79,829 20.4 33.7 61.9 71.7 89.6
.¸c 24,739 35,213 48,943 57,506 70,026 19.3 31.0 47.0 59.3 77.0
:u 30,234 44,730 53,636 65,245 73,628 23.5 39.3 52.0 60.6 81.0
:¸ 42,227 63,339 83,789 90,338 98,944 33 55.8 81.3 100.5 108.8
oe..÷: 41,207 55,898 72,463 79,456 100,224 32.1 49.1 70.3 81.4 110.3
÷¸c:¸5-c 37,983 47,339 60,219 71,111 89,761 30.2 41.7 58.4 69.3 98.7
:re:.-c 37,571 52,370 69,563 80,379 28.7 46.1 67.5 79.4
eu.O¸5-c 44,311 72,251 90,889 109,202 34.6 63.6 88.1 114.8
eç÷¸5-c 56,862 84,627 97,517 122,252 79.1 74.4 94.6 133.4
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cc.O_ cc ç.crc._.
ç.eç.u.c.ç:ecu ÷ccO o.¯ rO :. e÷O. o.ecu
÷ccO o.º rO ∞cr O e:.O¸ :. o.cu..¸. ¸c
o.c, zo¡+ Oc.ec .¸ ..÷ º :_ zo¡z Oc.ec ouc,c
r.¸c˙ce√çec O.c:. r_ ÷ccO z+.! r Oc.ucO
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cO o.rc.uc ÷D.cr eru¸cr -OO c: rô.
÷ç:. Ou c:ec r¸co., eç.c o.∞c5 ..O5 O¸¬
o.: ÷.. eç.c ÷D.cr O..c.cec Oc.uc, ¸:c¸
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zo¡+ Oc.ec o∞_ r.¸ c˙ce√çc :_ zo¡z Oc.cO
÷.ecr.O ÷D.crcue. c¸c”. ÷ccO ¡¯.¯ ru ç
÷D.cr ¸c¸c5 ÷ccO z!.z ru ç Oc.uc o o¸:.
cO.crc cc crrcoçrc
e÷O. o.ecu ÷ccO z¯.! rO ∞cr O cO.:u :.
÷uueoçu ¸c o.c zo¡+ Oc.ec .¸ ..÷ uOc
:_ ç zo¡z Oc.ec ouc,c r.¸ c˙ce√çec ¸-. .:
÷ccO e.¯ r Oc.ucO ÷.ecr.O ÷ccO ¡o.+ r ¸:_
Oc.ucr ¸-. o¸:. .. :. c..¬ cO.:u e÷O., zo¡z
Oc.ec ouc,c r.¸ c˙cecçec ¸-. .: ÷ccO e.+
r Oc.ucO ÷.ecr.O ÷ccO ¡o.e r ¸:_ Oc.ucr
¸-. .¸u. e5 ÷ç:. e:: o o¸:. O.:u o.ucuc o¬
OOç, cOcc. ..c. cç.:c ÷Oc.u o., o.c.r rOc:
Oc.uc o. ÷: cO ÷...cO eç.c eO_ç rOc:
Oc.uc o. e5 ÷ç:. ∞cr o o¸:. zo¡+ Oc.ec .¸
..÷ uOc :_ ç O.:u o.ucu O5u.r. ÷ccO
¡ ru o¬ o o¸: o:c -÷ c., r.c, c:c¸c¸† ÷:
: ec.ç c. og:u ¸c.c†c rô. c_eO¸u ÷ccO
!º.+ ru, ÷ccO z+.º ru, ÷ccO ¡º.s ru ÷:
÷ccO ¡+.º ru o¬ o o¸: o:c e¸.˙ :. O¸rOc
og:u ¸c.c†c rô. ÷ccO ¯s.+ ru ÷: ÷ccO
!z.¯ ru o¬ o o¸:. zo¡z Oc.ec ç uO ≥5˙c ¡e r
≥5˙c cO.:u e÷Oc ÷ç:. cr rôe.u ÷: ≥5˙c
..c. c:÷÷rc.c ..u ≥5˙c cO.:u e÷Oc
O¸¬ †c. rô.O c:c rOc: rc o¸: o:c ≥5˙c
cO.:u e÷Oc zo¡z Oc.ec ouc,c r.¸ c˙ce√çec
† O.c:. r_ ÷ccO ¯.s r Oc.ucO ÷.ecr.O zo¡+
Oc.ec ç ÷ccO z.e r o¬ Oc.ucr ¸-. o¸:.
e÷O. o.ecu ÷ccO +.¯ rO ∞cr O :¸c¸¸ :.
õ≥¸ ÷eç. ¸c o.c zo¡z Oc.ec ouc,c r.¸
c˙ce√çc :_ O.c:. r_ ÷ccO s.º r Oc.ucO
÷.ecr.O zo¡+ Oc.ec o∞_ r.¸ c˙ce√çc :_
† ÷ccO ¡¡.¯ r ¸:_ Oc.ucr ¸-. o¸:. e÷O.
÷5c.çrcu õ÷u o.c cr: r_ e÷O. ÷¸cc.,
:c.r.ô c¸ ..u :. e÷O.Ou O..c: rô. ÷ç:.
.u ¸¸- rc...c. e.. Oc.uc ÷ç:. e:: o o¸:.
c ouO, zo¡+ Oc.ec .¸ ..÷ uOc :_ ÷..Oc
≥cr.u ÷-ç:. c¸cu z.¯ çrO. ÷ccO zo.e ru
÷: d:¸u c:: ≥cr.u ÷-ç:. c¸cu ¡.¯ çrO.
÷ccO +z.¡ ru ç o¬ õ o¸: u.: :.. ≥cr.u
÷5-u.:. c¸cu zo.z çrO. ÷ccO +.o ru O¸¬ o
o¸:. ce.u., e.. r.¸c˙ce√çc :_ ou:c:.¸c
:. õç.: :¸c,¸ c.õ:. rcuuue. ÷-..O c¸cu
¡.¯ çrO. ÷ccO +e.s ru O¸¬ o o¸:.
97 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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rccu, c:u¸o.: rô5 o¬ zoO ÷..u -:g crr
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o:c .Ω -:g ÷-..O ÷: e.e:cOu ¸ç .Ω c..¬
c..c c_eO¸u zoO ÷..u -:g crr c¸cu +.z
çrO. ÷ccO z.+ ru ÷: e..eO.u c¸cu !º.e çrO.
÷ccO ¡.z ru O¸¬ o o¸:.
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e÷O. o.ecu ÷ccO ¡¯.¡ rO ÷: ç.eç.uecu
÷ccO s.s rO ∞cr O -¸r, cr.. :. eçc_
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c˙ce√çec O ÷ccO e.º r Oc.ucO ÷.ecr.O zo¡+
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¸-. o¸:. zo¡+ Oc.ec .¸ ..÷ uOc :_ ç -¸r
..-. ÷: oeur: e÷O. ...÷..u ÷-..O e,!¯z
çrO. ÷ccO z.s ru O¸¬ o o¸: o:c c.õ:. rcu
¸-u .c r.tc: ÷-..O º¡o,¯o¯ r çrO. ÷ccO
!.z ru O¸¬ o o¸:.
ãz O.O ç.cç.r. Oo.rcc ç..cr O..crc (%)
ç.cc
c_o o.c º
2009 2010 2011 2012 2012 2013*
r.or.oòr 3.2 7.0 1.4 5.8 6.5 2.7
e: -8.4 13.8 -1.2 -1.2 -1.1 1.9
o -5.1 17.5 -8.4 1.3 3.8 13.3
÷Ω ocucu ec.. 5.2 35.6 -19.0 5.0 -10.7 6.9
c. ÷5c: 6.2 2.9 7.3 6.4 6.3 6.3
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ccO. 3.3 8.0 8.6 4.6 4.9 6.3
eO_ç -0.2 7.5 10.3 3.7 4.2 4.9
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:¸c¸¸ :. õ≥¸ ÷eç. 11.7 13.2 13.4 7.9 8.9 11.7
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c.:. o.ec e÷O. 5.9 5.4 1.2 1.4 1.6 2.9
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uQ,dY%h ( ckf,aLk yd ixLHd f,aLk fomdr®;fïka;=j
* ;djld,sl
98 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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ecuu5 rcc. o∞_ drc. oO÷..Ou oecr.. rcu
¸.: .crcu ..-¸r.cO og:u o¸:Ωo. e.u.
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99 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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c:_ c..O e:c õc. zo¡z Oc.ec ç ÷.cO o.c.r
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c_ ecç._r o.cO _-. eçu _-u .c c...c
Oc.uc Ou o¸c¸c oecr.. erec.
100 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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ou..uc rcu _ç ¸¬ .ç_ cccccec: c÷r._u
-_c,., r._.◊r ccOcu e:ceOu o¸cOu õ.._
r5cucu eu.c¸Oc. ÷: :.c.ucc eO_çec._
c_ c..¬O_ c_ ..u ...÷. ..O.r c¸Oc.
¸ç..uc c:c c,. erec: -_c,eoc. zo¡+ Oc.ec
÷¸cc¸5-c ..÷ec ç O.c.r ÷...u. ¸ç..uc
÷ccO ¯.s çrO. o-.¬O ÷oeOu Oc.OOc c:_
c..r çruO o¸c. e5 occ _r..c ÷: O.c.r
÷...u. cçu. .c ._r ¸ç..uc c_eO_u ÷ccO
+ r ÷: ÷ccO ¯.¯ r çrO. o¬õc.
O. O ¯+ > c _.r.co or c O, o _ r cc ç.c.o _ç .orc (c.çr Oo oc zcc»c¯ Icc)
101 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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102 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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+.+ ru O¸¬ O occ oeurc c.˙ec..r c..¬
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c_ ç ¸u.u o.ucu õcç. ÷ccO s.e ru O¸¬o.O
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÷ccO +.¡ ru c..rO¸¬ o o¸.e¬..c_cu +,szº r
õc. cOç, o¸.Ω5 rc..ucec eç.c O.ecu crc
r_ o.c O¸¬o. c_-. rccu ec†c_ o.ucuc
÷ccO s ru o¬ o o¸.e¬..c_cu ¡,¯o+ r õc.
ere÷eOcc, c÷.cur ¸O. u.c.çu, cu ÷: -u:.c
u.c.çu o.ucu õcç. ÷¸_rc cc e_÷ O¸¬ o.
e:ceOu zo¡z Oc.ec o∞_ r._c c_ ÷ccO +.e ru
o¬ O occ .¸† c..¬ o.ucu õcç. e.. r._c c_
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õc. zo¡z Oc.c oO÷.uec ÷O .ç_ cccccc _:_
rc. ÷: cOc_ o.ec.:u O¸¬oe.u o¸c O c:cc
-_c. e:ceOu, ¸†rô5 rc..ucc c_ o.ec.:u
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¡!.! ru O¸¬ o o¸.e¬..c_cu ¡,o¡¡ r O occ cuc
÷c ÷: ¸crc. o.ucuc õcç. ÷ccO e ru O¸¬ o
o¸.e¬.. c_cu ¡,eºe r õc.
ç o.:.c, c.u Oc. :. ≥5er._ u.c.çu ocucu
o.∞ce.: o¸c O ÷ccO ¡s.º r ÷er.DucO
÷ecr.O, e.. r._c c_ ç c. o.∞c. ÷ccO
z¡.e ru o¬ o o¸.e¬.. c_cu ¡e¯ r õc. zo¡z
Oc.ec o∞_ r._c c_ ç c-c u.c.çu ocucu
o.∞ce.: o¸c O ÷ccO o.z r o¬ o.O ÷ecr.O
c-c u.c.çuc e.u. :.c.ucc eO_çec.e_:
c_ ..u o¬ o. e:ceOu e.. r._c c_ ç c.
o.∞c. ÷ccO !.+ ru o¬ o o¸.e¬.. c_cu e¡e r
õc. ¸_g. ÷: :.c.ucc eO_çec.e_ c_ .uu
o¬ o. e:ceOu .¸◊r, †c.uc :. ÷O..cc.
ocucu o.∞c. ÷ccO z!.s ru o¬õc. c ouO, .Ω
ocucu o.∞ce.u ÷ccO ¯!.! rO ∞cr eOcu
rc..uc u.c.çu ocucu o.∞c. o¸.e¬.. c_cu
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o¬ o o¸.e¬.. c_cu zs r õc.
0
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103 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O. O ¯! > õcç c c cO¿∞o
ç,.c... ò_cr
çcroc 2010 2011 2012 2012 orc,c. 2013 orc,c.
(ç)
çcrcr 8,626 10,559 9,774 7,305 7,327
r.or.oòr çcrcr 2,306 2,528 2,332 1,737 1,837
ec 1,441 1,491 1,412 1,032 1,103
oeurc r·.r.ccr u.c.çu 865 1,037 920 705 734
r.oòr çcrcr 6,097 7,992 7,371 5,519 5,453
ec†c_ :. o¸.Ω5 3,356 4,191 3,991 2,973 3,127
o.:.c, c.u ÷: ≥5er._ 245 348 284 213 167
c-c u.c.çu 558 885 859 644 616
cuc ÷c ÷: c.ucr ¸crc. 259 312 297 225 218
-u: ec_ u.c.çu 263 553 463 352 337
oeurc r.ccr ocucu 1,416 1,703 1,477 1,112 988
-rooc çcrcr 24 33 61 42 28
Oo.ro<c cr.ror _ç 199 6 10 7 9
ç.rcr 13,451 20,269 19,183 14,173 14,068
c.˙c¬..r ¬.<. 2,477 3,654 2,995 2,292 2,333
o.:.c ÷: c.u 1,322 1,567 1,304 994 1,026
oeurc c.˙ec..r c..¬ 1,155 2,087 1,691 1,298 1,307
çroo,† ¬.<. 8,054 12,275 11,570 8,552 8,529
-◊: ec_ 3,041 4,795 5,037 3,715 3,829
ec†c_ ÷: o¸.Ω5 1,812 2,321 2,266 1,645 1,503
c˙. ÷: -¬¸˙. 265 429 364 294 254
oeurc 2,936 4,730 3,903 2,898 2,943
ç.cc.or ¬.<. 2,758 4,286 4,590 3,305 3,177
cuc ÷c ÷: ¸crc. 1,339 2,141 2,356 1,600 1,696
e..¬u¸._ ¸O. 822 1,076 1,237 883 1,011
cO.:u ¸crc. 593 1,065 992 818 467
oeurc 4 4 5 3 4
Oo.ro<c cr.r¿ 162 54 28 24 10
cO¿q c.c (4,825) (9,710) (9,409) (6,868) (6,722)
._..c · . _r. .: -¸rO
(o) c.Or._r
104 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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c,c÷O:u +s > ccOr cco< õcçc drc. r.<. cc drc. cO¿çcc._ çrO c.crc
105 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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uQ,dY%h: World Economic Outlook (WEO)-Transitions
and Tensions, 2013 :re:.-c" :.:.u:c .¸. oc.ç¸
106 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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* 2013 iy 2014 ixfYdaê; mqfrdal:k
_ç.orc cc õdrc.O
o.c.r rOc:O¸ Oc.uc ÷: ÷..c c.˙ec..r c¸
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o.c.rcu : ¸ç..u c¬ucu oO. Ou o¸:¸c ç c :.
÷¸÷çe5 ç u¸. cu eO_j ec._ ÷: ÷Oc.uc eOcu
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c:÷÷rc. e::eOu zo¡! cc ÷ccO z.º çrO. ¸:_
cu o¸:¸c oecr.. erec. ce÷ OOç, :.:.u:c .¸.
oc.ç¸ ..u zo¡+ :re:.-c cr..cO c: r_ World
Economic Outlook ouO, .uç..c o.c.r rOc:
÷: ÷..c c.˙ec..r c_ ..u e::eOu u¸. cu
eO_j ec._ ÷: ÷Oc.uc eOcu cO:u o.c.rcu :
¸ç..uc :c.r ≥cO ÷.uc Ou o¸:¸c oecr.. r_ ç,
÷c: .r.:.Ocu, ¸:_ eç.c ¸¸g5 c¬u ÷: õu.c
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÷Oc.: o.c.rcu : õdrc. ..O5 zo¡+ ç ¸:_ o.cu
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c: e¸÷ e.. O÷ec ç c:_ -÷u o¸:¸c oecr..
erec. e.. c:_ c.. ÷ç:. -¸c.u ¸-u c.c.õr
e::u Ouec :uõr..u.:.r (demographic
trends) rc¸. e::eOu .. -¸r.c o¬ o. ÷:
oee.c.cO c: O .crcu e÷Oecu ¸O: o. eo.
o.÷c.u ÷: ¸:u o¸e.˙r.u ÷: r¸˙-cu r¸.cc
†c. eOcu cO:u o.c.rcu : õdrc. ..O. o¬
o.cr .uu. o:c drc. ucr:c ¸:_ ..O.r cO:,
ce÷ OOç, eç.c.¸ur oc-ç ÷: oeur: ÷..:
o.c.r .¸OΩ e::eOu .¸çecc†. ÷: ocr.u
o.c.rcu : ¸:. O¸¬ ÷: ÷.ecu ¸:_ cu õdrc.
..O.r cO:u o:c, drc. ¸:c.çuc ÷ç:. o∞_
c:c:: rc.:.r rô. o:.O.. eo.
107 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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.÷ cr..cO c: rcu ¸ç Fiscal Monitor ..u
O.O ¯e > _ç.orc cc ccO. õcrrc (ç.cç.r c crcrcr c_c)
rr. cco.rOr
2011 2012 2013 2014
_ç.orc
÷Oc.: o.c.r 1.3 1.2 1.2 1.7
÷Oc.uc eOcu cO:u o.÷c.O 6.3 4.7 5.0 4.7
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uQ,dY%h · World Economic Outlook (WEO)-Transitions and Tensions, 2013 :re:.-c" :.:.u:c .¸. oc.ç¸
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÷Oc.: o.c.r õ÷u ...r.¸u .¸¸c5 rc...c.
ou..uc eu.r_e:.: ¸:_ .c ..O5 e::eOu
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:.:.u:c .¸. oc.çe¸: zo¡+ :re:.-c World
Economic Outlook ouO ÷Oc.: o.c.rcu : ¸:_
.c ouc.: ÷: .¸. er.O÷rc.c †.u †.O.
c¸O:.e:.: uO .¸. oc-çcr o¸: õc :¸r -OO
ou..u rc o¸:. ÷÷uçu.:.rO, u¸. cu eO_j
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.c, ç.eç.u.c.†:ec c:.:cr e¸÷ c:_ o.cr
.uu. o:c, zo¡! ç ç.eç. u.c.†:ecu ÷ccO +!.¡ r
Ou o¸:¸c oecr.:c.
108 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
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uQ,dY%h( Fiscal Monitor-Taxing Times, 2013 Tlaf;danr®"
cd;Hka;r uQ,H wruqo,
÷Oc.: o.c.rcu õ÷u ou..uc rcu ¸-u
c.:. .¸. c:÷÷rc. rc...c. .,: ou..:ec
ç ÷5cc. o.O ucc: -¸õu, e-.e:. ÷Oc.:
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e::eOu ÷¸¸rc c: Oc.ucr o:c: rc.u
o¸:. c.¸u: -¸rO õ÷u rc.:.r rcu ¸-u
c....:.r ¸:¸rc. O¸¬÷O:u e::eOu zo¡+
cr÷: c.:..uec ocO¸c :.c ÷ccO ¡.s ru o¬Ou
o¸:. :c.u c.˙ec.:u -≥ ¸†˙ O÷cO¸ç ¸:_ ¸c.O
oecr.: -¸õu c.:. .¸. c:÷÷rc. zo¡! ÷:
zo¡¯ O÷c çrO. r¸.:Ou o¸:. c :. ÷¸÷çe5 ç, u¸.
cu eO_j ec._ :. çc. eOcu cO:u o.c.rcu
õ÷u .:. c. o¸: o.c.r :. ÷..:-eç.c.¸ur
ocec.. ...ec c:÷÷rc. :O ≥cO: c.. rccu
÷5u o:c, zo¡+ ÷: zo¡! ÷ç:. Ou cec.r.u zo¡z
O ÷.ecr.O o÷:O∞cr :::Ocr cO:. ce÷ OO:,
zo¡+ ç ocO¸c :.c cΩ¸ OOç, zo¡! ç e.. o.c.rcu
÷..Oc Ou o¸:¸c -¸.ec.ec.:: eo.
109 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
O.O 58 > çcO,c c.c (ç.cç.r. crcrcr c_c)
rr. cco.rOr
2011 2012 2013 2014
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cr÷: :ucçc -9.7 -8.3 -5.8 -4.6
cec. r¸.cc -4.2 -3.7 -3.1 -2.5
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c.c -5.3 -4.9 -4.0 -3.5
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cr÷: c.:..uc -7.8 -7.9 -6.1 -5.8
r,. or cO¿q cc.¿ ç.oOr -1.7 -2.1 -2.7 -2.5
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c.˙c¬..r ò_
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e:: Oec ÷¸cc. ¸:_ c.. ÷: cuc ç o¸:ΩO
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o¸: O o¬ ¸¸g. eo. :.:.u:c .¸. oc.çe¸:
zo¡+ :¸ Commodity Market Monthly ouO O÷ec
.¸ ..÷ :c o¸:_: c¸ ..u ÷ccO z.o ru c:_
.c o:c, c_eO¸u -¸.r: c¸ ÷ccO z ru ç,
o.:.c c¸ ÷ccO + ru ç, e¸.: c¸ ÷ccO ¡z ru ç
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.: c∞ c¸O:c ç, -¬¸˙., :˙. ÷: ÷:¸ ÷¸cc.
÷:O∞cr ..O.r cO:çç o.:.ccO .u ¸-u e:¸
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c˙ec.:uecu ÷ccO !¯ r ÷ç:. ∞crOu cu
o.c.rc .uç..c o. e::eOu ÷: cr÷: :ucçec
c....:.r ¸:¸rc.c r..ur¸O ¸O: rô.
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u c:¸ .c o:c cr÷: :ucçec .ç¸ c:c::ec:
o¸: O eOu÷r5 ouO c:u ÷c: :-. .¸u.
÷5-u.ecu O o.r¸cec: ç eOu÷r5 o¸: õc.

110 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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World Economic Outlook : ¸reOu c˙†, ¸u†c.u
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111 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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112 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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Oc.ucr o¸: o.O e:: Ou o¸:.
113 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
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_.. rc .¸u. ÷ç:. cç.¸r o.cO c...O: e¸÷
oO.. oc.ç¸ ¸-..¸u.O oO÷..O ¸¸e-u o¸:.
ç.∞co
o.∞c5 o¸÷:e5u: ÷r÷ rô. ÷ç:. cçu5 O
¸cr¸cu o¸... iv : ÷ç:u rc o¸:.
õcço
c:ec õcç5 o¸÷:e5u: ÷r÷ rô.O cçu. c::
o.r.c eo.
e c.:. e÷Oec c¸cu ¡.+ r e÷Or c˙÷r ÷5u
o¸:¸c ç :OuO O.c.rO ¸¸e-u ou.: O¸Oc
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o. .: O¸Oc :. eo:u õcç. cçu5 o o¸:. zo¡+
Oc.c :_ ç uO ¸c....˙u e¸÷ ¯o,!¯o r c.:.
e÷OcO -çO. .¸u. u÷. O¸Oc :. eo:u õcç5
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e zo¡! Oc.ec õ...c..O ucc: õ..crcu ¡¯,ooo
re. o..r -¸c,. ÷.. õ... O¸Oc e.o5
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¸cr¸cuc rc o¸:.
e ocO¸c :.c o¬o.: ÷.. c:ec .c .¸ue5
oO..:.Oc e.u. ¸ç..uc c:_ c.e5 c:c¸cr
O.ecu eç.c ec._ ouc.:r c:_ c..r oecr.:
o:c c e::eOu ec._ e.o5 ÷Ω O.ecu c..r
¸:_ cu o¸:.
e ... r.¸u ocO¸c ¸¸rrcu _.. rc .¸u.O
¸cec.:. e÷O. :. ÷¸cc5 .: Ou õcç. .r:.:O
r_.u.rc.c rc .¸u.O oecr.. rcc.
e ec.e:.c ÷:u...cc O¸u r·.rc..u:cO c:÷r5
÷¸÷u O¸¬÷O:u rc.:.r rô. e.u. c.÷¸
_.u, õ.Oõç..¸ ÷÷u, c˙eOu ÷÷u, o.-..:
c.õc¸Ou ÷: oeur: ≥.rc:.O¸u ece_u
cç.¸cu ÷ç:. Ou O¸¬÷O:u rc.:.r rô.
:_u rO5ccuO erecu ÷r.. :. ÷:u...c
¸†˙cO: o-.¬O cO:O.e.u c,..
e c.:. o.c:uO¸O ÷: ÷÷..O¸O erecu c¸Oc¸5
oecr.: ..O5 :_ r_.u.rc.c rc .u
o¸:¸c oecr.. rcu o:c cO.ec: r.cc÷..uc
.r:.:O Oc.uc eo c¸c -¸.ec.ec.:: eo.
e o.c.r e.u. o...cuc, e÷-.c ÷: O·::c
c:. cu.ç ÷..: c5:¸ c:÷r5 cu eçOc.c.
÷Oc.uc rô. ÷ç:. O :.:r, c.eç.c :. ..cc
..Oe5 ÷Oc.u O¸¬÷O:u :_ ÷≥ rcu c.:.
o.ec.:u ç.eç.u. c:.:cr e¸÷ ÷ccO e rO O¬.
O¸¬ o.cr .u o¸:. ecç.¸r o.ec o.c.r
rc.r.cr5 ¸uu≥ rco. :_u o.c.r Oc.uc
¸:_ uO. c.eç.c o.c.r o÷..u:. ÷: ç˙¸:.Oc
o¬rô.O oO.. .r:c c..u ¸-.eçu o¸:.
e c.:. õcç5O¸ ...:.r -O O¸¬ rô. ÷ç:. Ou
c˙..cu ¸¬ rô..
e o.∞ce.: cO.:.Ocu ouO e.e:c5 õcç5
cO:O.e.u c..O O¬.: .r:.:O rOc: rô..
<c .,rO
eç.c :. õeç.c .c .¸u5O¸ O¬.: e:.j ÷c:cr
cO:O. .¸u. ÷: ç.eç.u. c:.:cr e¸÷ .c
ouc.:c c:_ c.e5 o-.¬ cO.:.Oc ÷cr.:
rô.O rOc: erec. o¬ c˙O¸cru c:ec .¸.
oO..:. ÷cc. .¸u. oc.. rc .ucu .c
r_.u.rc.c o-.¬O rc.:.r Ou o¸:.
ç,crcOrrO_ c.coç¬.Oc
c:: ÷ç:u ocec..cuO o.c.r cec.r.u ÷eoç
õc :¸rc.
e oecr.: ..O.O O¬. O¸¬ eo.cru e¸.r
o.c.rc c.. :::OcO c:o. e::eOu -u:
e:¸ :. oeur: c..¬O¸ :.:.u:c c¸ ..u
¸:_ c,.O o¸: :¸rc.O ÷: c :_u o.ucu
õcç., eç.c c.˙ec..r c¸ ..u, u.c.çu
õcç5 e.u. ocO¸c õcç5 erec: ç o::rc
e¸÷ -¸c,.. ere÷ OO: c e::eOu ocucu
O¸¬o. O¸u ::rc c:c¸ ç o¸:õc :¸rc.
e ÷Oc.: o.c.rcu õ÷u rc.:.r rcu ¸-u
o.c.r ¸:e::r rc...c. r..ur¸O o¬rcu
¸-u r.¸÷..O :. rcu ¸-u o.r.cc.
114 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
e e..¸c c eç.c.¸u :::Ocu :_ :O.uu.
ouecr.: ÷: oc:c: cO.:.Ocu e¸.r
o.c.r c.:cO rcu ¸-u -¸c,5.
e -.:cO o¸:Ou r5cucu ÷j:. oO.. .¸¸c5
÷≥rôe5ç eç.c u.c.çucO :. o.c.r Oc.ucO
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e r·.r.ccr rOc:, :¸ õ≥¸ ¸:c.çuc ÷:
ocO¸c rOc:O¸O -¸c.u c˙† oc:c:
r.¸.◊r :::Ocu c¸O:..
e ÷Oc.õr o.c∞
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oO:c:.
e .¸†r.¸uO oecr.. rcu c˙Oc.ucu: o¸:õc
:¸r ..˙:. ÷ec..r õeç. .¸.cuc .:
erecu õ..¸ c5:¸ c:÷r5 ÷Oc.u O..c·:
erec: -¸c,.r o¸: r_ :¸r Ou o¸: o:c
c..u o.ec.:u c...c ÷: o.c.r Oc.uc
erec: o¸: r_ :¸r -¸c,..
o.o. o_. rrrOc crcoc -_c,or r¿
c,r çOç.rO c..r
e :.:.u:c eO_jec.e¸ -u: e:¸ ÷:
c.˙ec..r c..¬ c¸ ..u oecr.: ..O.O
O¬. O¸¬o. ÷.cO o.c.r ÷..Occ.OcO ÷: o.c.r
Oc.uec oecr.: ¸¸rr _..rc .¸u. erec:
oc:c: -¸c,5 o¸: rcu ¸¸-c :¸r o:c cc
c:ec o.∞c5 :. õcç5 erec: ç -¸c.u o¸:.
e e¸.r o.c.rec Oc.uc oecr.: ..O.O
_.. eu.o. e::eOu o¸:õc :¸r e..¸c
o÷.:¸::.Ocu, . ¸r.eo c..¬ :. e÷O. ÷j:.
Ou õeç. ¸¸g. erec: o::rc e¸÷ -¸c, :¸r
o:c cc . ¸r.eo o.c.r Oc.uc c:: O¸..O
e:: õc :¸rc.
e oecr.: õ..crcu ÷-..O oc-Ocu c.:.
e÷OcO rcu ¸-u -jO. .¸u5.
e c.:. O.O÷.ccu: r.cc÷..uc oecr.: ..O.O
O¬. o¬ o..
115 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
1
oc.c, :u..ccc.. r¸.rc,Ou, cOccc r¸.eoçu ÷:
e¸-rcu ÷ç:. õe.. oc.ç¸r c:Oo.,
O.:u c¸ ç .,u., :.cr ec... e¸r:
r.cc.¸ O..c-cc o-.¬O cOcO.e.u c..
:. _.uO :crc c.÷¸ :.¸cr o,c rôe:
O..c-cc, euΩ: ec.r. .:uç c.:cr.
c. ..¸.O ÷: ec.≥ c.:. ..¬¸c c.:.
u.cr ÷.ΩO c,O,co. ÷ç:. -.¬.cu.cr
÷:.uc. ..¸.eo c:÷r: O,¬ †c. rô.,
u¬cc :. ÷,cc: e÷O., ¸ -¬ :. Ocr:
cuc,c..cuc :. O,¬ †c. rô.
765,000,000 1,270,122,460
2
o....c. r.cc.¸cc ÷,cc: ÷: oeur e÷O. 10,000,000 -
3
õe.. r.cccu
c_-ç e¸r: (e:...
o..c.Oc,) r.cc.¸c
e:... o..c.Oc,u ÷j:. O.:u c¸ ç
.,u.,o..c. u¸ uO÷ cuc,c..cuc :.
O,¬†c. rô., O.:u oΩcO,¬c. rô., õç..
:. c.r.. uO uc...cu e¸r: r.cc.¸c
..u ÷:-u.rc. rô..
79,800,000
4
¸c˙...rc.O¸
õu.Dcr.cOc,
o.õu÷c,Occ.e. u¸ uO÷ cuc,c..cuc,
O.:u u¬cc, ¸c˙...rc.c ÷j:.
ec.ccc, c.r.. c:÷r: ÷:c e¸r:
r.cc.¸cr ÷..cc rô., cç.¸ c¬u¬,
e÷O., ¸-¬, r.cc.¸ ¸crc., e..¬u,.¸
:. ¸†rô: cuc,c..cuc :.
O,¬ †c. rô..
22,000,000 17,900,000
6
c.:. e÷O. er.c.u
÷c.O
O.:u c¸ç .,u.¸ ¸-¬ :. r.cc.¸
¸crc. c¸ç .,u..
800,000 6,800,000
7
o.rc. e÷O.
er.c.u ÷c.O
¸ -¬, r.cc.¸ ¸crc., cuc :.
cuec.crc. c¸ç .,u.
700,000
8
:.cr ec.¸÷
er.c.u ÷c.O
O.:u c¸ ç .,u.
5,150,000
10
o¸¸÷ e:. q..
eD.çu. õ.c..
er.c.u ÷c.O
uc u¸..ôu ÷j:. õe.. ç.u., e÷O. ÷:
uO r.cc.¸ e..¬u,.¸ ¸†rô.. 4,040,000 16,500,000
12
:.cr o...cu
er.c.u ÷c.O
¸ -¬ ÷: r.cc.¸ ¸crc. c¸ç .,u.,
¸u.u, e÷O. ÷: ¸c¸O.
360,000 700,000
13
. ¸r. ..uO :cr:
er.c.u ÷c.O
O.:u c¸ç .,u..
6,500,000
14
uccc
eçc.cce:ucO
o.:.cc.¸u :. u¸ o,∫:, O.:u oΩcO,¬c.,
cç.¸ c¬u¬ e÷O. ÷: ÷,cc:
17,175,000 3,000,000
15
uc erO:cc
÷:c.çu
eçc.cce:ucO
e..¬u,.¸ r¸ :. c_.c c.¸u o.ccu -≥
9,000,000
16
c.c¸e:ucO O.:u c¸ ç .,u. ÷: ..u õcç: 3,000,000 4,000,000
çcO¸c cc.c ccO. cc c†c çOc.r. O.rO O..o.rc cOcr oc. c.<....oc õcr _-. ≥r
oro.çr (zcI+ orO.˙ cO c¸or¸O-o çrO.)
o,. .. I
116 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
19
c.c¸e:uceo
õcr. u.crc..e.
r.cc.¸c
..u õcç:, cO.:u õcç: ÷: O.:u c¸ç
.,u.. 1,490,600 10,650,000
20
.,cOc.
eçc.cce:ucO
¸cc,, Oc., .... c_.c ÷c. .,cOc.c
÷j:. O õcç:, ::-uec.O .,cOc.
r.cc.¸c ÷j:. O õcç:, o.:.cc.u :. u¸
o,∫:, õeç. ..u õcç:, õ≥¸c :. :¸c
755,600,000
21
õ..r..cc eOuc ç.u. 56,000,000
22
c˙c.¸u rOcc
c_-ç c.c¸e:uc
er..÷.˙÷c..e.
r.cc.¸c
¸-¬ ÷: r.cc.¸ ¸crc. c¸ç .,u. ÷:
..u õcç:.
440,000 543,000
101
-ç...÷u :. o..cr
rOcc o..c...c
O.:u c¸ ç .,u.¸ euc.¸ec g:-uec
c:. ≥O.,.. õeor...cc uorc.c
rô., zo¡+ ocO,c ec.:u. ouO o..cr :.
÷÷r-cr O.u.r: cOc.uc :. o÷.˙c
õ:.c÷..uc cc÷÷rc.c rô., o.:.c c.u
:. u¸ o,∫: õeç. ..u õcç:
50,683,200 70,600,000
201
e-ç. rOcc
eçc.cce:ucO
e-ç. rOcc ÷:-u.rc. u¸..ôu ÷j:.
..u õcç:.
5,800,000
204
:u≥ o..cr :.
÷÷r-cr rOcc
eçc.cce:ucO
cç.¸ c¬u¬.
4,500,000
102
.ç¸ :. r.÷:c.çu
o..c...c
. ¸r. r.÷:c.çu e÷Oc :. . ¸r.
..r..r.ô e÷Oc ÷j:. u¸..ôu -jO.
.,u., õ÷cc. ÷..: o.cr.. O,¬÷O:ur
÷,r÷. ÷j:. ¸-.≥u c∞u ..:.c rô.,
O.:u c¸ ç .,u., cç.¸ c¬u¬, zo¡+
Oc.ec oΩcu ÷..cc ec.ccc, c.r..
r_.u.rc. eçc.cce:ucOO o∞¸ õcç:,
zooº Oc.cO o∞_O O.:u uç:÷ rc.,ue:ç
e.õc cc cc,-≥ cco., zo¡+ ocO,c
ec.:u. :. r_.u.rc. e÷O. Dre¸-
or +o ouO ÷..: o.cr.. ..¬¸c ÷j:.
ç.u. :. cç.¸ c¬u¬
114,219,799 45,723,165
237
:.cr r.÷:c.çu
eçc.cce:ucO
÷...c. :. ÷cr.c ÷..: ÷Oc.uc ÷j:.
Ou ccccc :. ÷Oc.u O,¬÷O:u ÷j:.
¸-.≥u o...c .ç¸ ..:.c rô..
39,650,000
239
õeç. ÷:cc
eçc.cce:ucO
çõc.c.r o...c .c ¸.u¬.eo O-ccc
:. c.r.◊r c:. ...÷..uec ÷..cc
rô. :. ..¸†Oceu ot¬ u.cec: ..c.c
¸†rô., c˙..r ¸c.. c_ç .,u. ÷:
õeç. ..u õcç:.
3,000,000 1,020,000,000
240
:.cr ocO,c
eçc.cce:ucO
r¸-≥ cçu. .c ¸-..c O.:u ÷j:.
ec.¸ e.o., zo¡+ ocO,c ec.:u. ouO :¸
Oc:rcu ÷j:. ç.u. e.o..
671,600,000
çcO¸c ccc ccO. rO≥oOr...
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
117 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
241
c.:. O..c.c
eçc.cce:ucO
e¬c,: rôe: ..÷c ÷: eOuc õcç:
2,200,000
243
÷Oc.u .¸.
eçc.cce:ucO
zo¡+ ocO,c ec.:u. ouO ¸r. cc
÷Oc.u -,reo .c o.cr.. oc.¸r
c:Oo..
500,000,000
245
c.:. .ç¸
eçc.cce:ucO
o..c. ..¬¸c õ÷u cc rcu ¸ç õe..
õ.c.. ..¬¸c ÷j:. ç.u.
1,150,000
246
eç.c o.∞c:
eçc.cce:ucO
-≥ c˙c.¸uc ÷j:. c˙..r zz¯ r c_ç
.,u., -≥ r¸ :.c_.c c.¸u o.ccu -≥ :.
r.cc ..¬¸ c:. O,¬÷O:u
25,000,000 45,000,000
247
. ¸r. ec.O .cc¸ .Ou ec.Oc¸ rOcc ÷j:. c:÷r:
÷,¸÷.O -÷ c.cr c¸ ç .,u. :. ec.O
õ÷u zooº Oc.ec ÷O c.:. o.ccu eOc
uç:÷ rcu ¸ç O.:u ÷ç:. -≥ cco.
" 13,926,000
249
c..¬...c e.e:c:
eçc.cce:ucO
c..ç rcu ¸ç e.o:, .c c˙c.¸u õcç:,
o c¸ç .,u. ÷j:. Drc oc.çe¸: ÷..O
O,¬ rô.
1,370,000,000 1,553,000,000
250
c.:. ..:
eçc.cce:ucO
r.cc.¸ e..¬u,.¸ oΩcO,¬c.O
8,000,000
251
cre÷c,
eçc.cce:ucO
zo¡¡ or !+ çc. cuc cOec c:cO
cOc..c c.¬ ¸-u c.:.O..c.c ÷j:. zo¡z
eç÷,:-c ¡º Ou †u o..c. ..¬¸ cc.c
ouO Ou† e.o. :. e÷O. õcç:.
1,400,000 2,100,000,000
252
:ue¸-u :.
÷-.. e¸-u
eçc.cce:ucO
¸.c c.¬: er.c÷e: uceç. ouO cç.c
e:ceOu ÷≥ O cç.¸ :. eçc¸ :.u c_-j
÷..uc o.c:c rô., zo¡+ ec-cO.˙ zs
.,÷. ueoçucO ouO o.c.r ÷..ucr
c,O,co., õeç. ..u õcç:, ÷..: o.cr..
çc.r ÷r÷ rô. ÷j:. ¸ç o...c ..:.c
rô., zo¡¡ Oc.ec cOcOu ¸ç :u.:u :.
uO.÷ ÷..uc ÷j:. O õcç: cco..
1,500,000 472,512,129
280
O..c-c r_.u.rc.
:. o.r..
eçc.cce:ucO
cuc ÷: cuec.crc. occc rc
.,u., O..c-c r_.u.rc. :. o.r..
eçc.cce:ucO .rc.c rô. ÷j:. ¸ç
o..c .ç¸ ..: .c rô..
700,000 3,230,000
296
o.ucu :.
ocucu c.¸u
eçc.cce:ucO
¸e¸reO.ur cç.cc :c:. o.ucu
ocucu rOcc c:÷rc ¸. ÷j:. c˙..r
cç.cc O,¬†c. rô..
4,000,000
323
uc rOcc
eçc.cce:ucO
cuc ÷: cuec.crc. u¬cc rô..
400,000
çcO¸c ccc ccO. rO≥oOr...
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
118 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
103
c.:. o.cr.r :.
u..˙r ÷Oc.u
o..c...c
zo¡+ ocO,c ec.:u. ouO u..˙r ceç.O¸
.Occ c.¸u rOcc rc.c.r rô.,
ccec.. :. ÷Oc.u rOcc, O.:u c¸ç
.,u., c.≥rr, eç¸rj :. o,7¸c.c cu
÷..uO¸ ÷c ec._ o..c ÷Oc.uc, c.õc,
.:..u O..c-cec -¸cc cco., ÷..:
o.cr..c ÷j:. ÷Oc.u O..c-cc, -≥¸¸
†÷crrc c¸ ¬u oc¸O. r_.u.r.
O..c-cc, õ≥¸c :. :¸c, O.:u oΩcO,¬c.
rô., cuc ÷:cuec.crc. occc rc
.,u., ec.≥ c.:. ..¬¸c c.:. u.cr
÷.ΩOO o∞¸ õcç:, zo¡+ Oc.ec ÷..cc
ucc :. ÷..c c_-j uO o..c...ec
cuc.Occu :.
c...u õcç:.
207,500,000 1,432,100,000
222
. ¸r. c. :.∞O r.cc ..¬¸ c:. O,¬÷O:u, O.:u c¸ç
.,u., e..¬u,.¸ occc r.,u., ec.≥
c.:. ..¬¸c c.:.u.cr ÷.ΩOO o∞¸
õcç:, ¸u.u õcç:.
500,000,000 414,500,000
223
. ¸r. u.õr :.∞O zo¡+ ocO,c ec.:u. ouO u.õr õç..
c.c ÷Oc.uc, O.:u c¸ç .,u. :.u.õr
c.c.O¸ u¬cc rOcc.
766,500,000
224
. ¸r. .Ou :.∞O e:¸er.cOc c.u.Ou c¸ ç .,u. ÷j:.
÷ccO ¡¯ r occr.c: .ç¸ e.o., ¸c..¬
.Ou c.c ¸†rô. ÷c÷..u O,¬÷O:u,
O.:u c¸ç .,u., õeç. ..u õcç:, O.:u
oΩcO,¬c. rô., õ≥¸c :. :¸c, r.cc
..¬¸ c:. O,¬÷O:u, ÷,cc: õcç:,
¸crc. c¸ç .,u. :. .:uOc oc.ucc
.Ou c.c ¸†rô..
325,000,000 3,045,850,000
225
ec.¸÷
eçc.cce:ucO
O.:u c¸ç .,u., :¸ c:.cr ¸crc. c¸ç
.,u., ec.≥ c.:. ..¬¸c c.:. u.cr
÷.ΩeO: õe.. o.c..ccue. o.cr.rcu
÷j:. u¸ o,∫: ÷,cc., o.cr.r ¸crc.
c¸ç .,u., ¸c¸O., ¸u.u :. oeurc
õcç:.
284,500,000 669,519,500
226
o...u :. õ..u
eçc.cce:ucO
.cc¸ :.c.ucc .Ou ec.Oc¸ c¸
c:÷r: o,c rô., uc„˙c.u dçõcu
ecc_. ÷c cOO c,o. ÷j:. O ..u õcç:,
¸e¸reO.ur o÷. urc rô. ÷j:. c:÷r:
O,¬ †c. rô., ..u -¸cc ¸crcõ¸
¯oo,ooo r c¸ç .,u. :. e÷O. õcç:.
47,987,200 314,927,000
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
çcO¸c ccc ccO. rO≥oOr...
119 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
320
÷õ¸ o.cr.r
eçc.cce:ucO
c:ec u¸..ôu ÷j:. eçc¸ .c ec.¸
e.o..
70,000
105
o.c.r ÷Oc.u
o..c...c
-: e-.:- oO..u. c_-jO ¸uOc rô.,
÷: :.cr -: e-.:- rc.õc:c rôe:
O,¬÷O:u, O.:u c¸ç .,u., zo¡+ ocO,c
ec.:u. ouO :çr¸. c.÷¸O¸ ÷÷uO
O÷c .,ç ç c.÷¸ u¸ o,∫: ÷: c.O:u
c.¸r eu.ce¸ ¸-.ç. :. c.õc, †õu,..
õe.. .cec.:u. r.c rc.c.r rô..
oΩcu -jO. .c oc..÷¸.c ¸c....ôu
÷j:. ç.u., zo¡z Oc.ec o,c O .Occ
e:ceOu ccc¸. †÷crrec õu..cO cc
uO.÷ cuc,c..cuc, c.÷¸ e..¬u,.¸¸r
¸†rô. ÷j:. ¸ç õeç. o...c ..:.c
rô., zo¡+ Oc.ec ÷..cc o.ec.:u cOc.u
o..c...ec cuc.Oc.u :. c...u õcç:,
O.:u c¸ç .,u., o .-¬.Or ¸†rô., cç.¸
c¬u¬, O.:u oΩcO,¬c. rô., -≥ r¸ :.
c_.c c.¸u o.ccu -≥ e.o. :. ÷.-ç.
o.r.˙ec e÷Orcu ÷j:. O,¬O O,Oc ¸-.
ç..
2,966,200,000 554,840,000
106
o.c∞ r_.u.rc.
o..c...c
. ¸r.eo o.c∞ oO∞u:
r_.u.rc.crôe: cç..cc ÷: ecc
o.c∞ oO∞u: ¸u: çe: O,¬÷O:u ÷,r÷.
÷j:. ¸,- o...c ..:.c rô., O.:u
occc rc .,u., .O....cec ¸†rô: u.
rô., e..¬u,.¸ oΩcO,¬c. rô., c:ec
e÷Orcu ÷j:. eçc_ .cec.¸, oΩcu
-jO. .c oc..÷¸.c ¸c....ôu ÷j:.
O,Oc :. ç.u., cO.:u e÷O., zo¡z Oc.ecç
†÷crr ¡¯ r c¸ o,c O . Ocecu
o¸.c:.ucO cc uO.÷ cuc,c..cuc
44,138,000 542,460,182
304
r.¸.. õç..
eçc.cce:ucO
¸u.u, c_.c c.¸u o.ccu -≥, ¸ -¬
:. r.cc.¸ ¸crc. c¸ ç .,u., O.:u
oΩcO,¬c. rô., eu.ccO -¸cc ucO¸
rô.
1,050,000 24,685,000
308
c,c,¸
eçc.cce:ucO
O.:u c¸ç .,u..
78,000,000
1 1 0
o.rc. o..c...c e.....rc. :. occ.Du..rc.
õu÷c,Ou :. o..c...c ÷j:. O.:u c¸ç
.,u..
239,700,000
228
o.rc. c˙c.¸uc o.rc. e..¬u,.¸ ÷Oc.u :. e..¬u,.¸
cuc,c..cuc:. O,¬†c. rô., ¸-¬ :.
r.cc.¸ ¸crc., cç.¸ c¬u¬, õ≥¸c :.
:¸c.
145,000,000 130,000,000
233
c:ec c÷ côr.r
eçc.cce:ucO
uO r.cc.¸ e..¬u,.¸¸ ¸†rô.,
côr.....c ÷:crcu -jO. .,u., :¸c :.
õ≥¸c ÷: O.:u oΩcO,¬c. rô..
25,000,000 176,000,000
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
çcO¸c ccc ccO. rO≥oOr...
120 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
234
e.....rc.ec
ec‚÷O.c
o.rc. O.cc. ÷cr.cO .-¬.rc c,-.
÷j:. .-¬. c:÷r: ÷..cc rô..
9,000,000
111
e÷-. o..c...c O.:u c¸ ç .,u., ec.:¸ ç:÷r ÷Oc.uc
rôe: O,¬÷O:u, :.. c¸ ç .,u..
250,000,000 450,919,956
112
õeç. rOcc
o..c...c
eO..uOu : c:. . ¸r. c.u.cc
r.cc.¸c ÷j:. e..¬u,.¸¸r occc
rc.,u. :. ¸crc. c¸ç .,u., uO†¸¸ec
. ¸r. c.u.cc r.cc.¸c ÷j:. u¸ uO.÷
¸†rô., -÷¸c, -:ecu :. e.¸-u cu .
¸r. c.u.cc r.cc.¸ ÷j:. O.:u c¸ç
.,u., cuc ÷: cuec.crc., ¸-¬ :.
r.cc.¸ ¸crc. c¸ç .,u., cO.:u ç.u.,
e÷O. ¸u.u :. ¸c¸O.
233,500,000 840,637,250
114
cO.:u o..c...c zo¡+.o¡.¡¯ †u,c o..c. ..¬¸ cc.c ouO,
. ¸r. ..u. ..u ..¬¸ec e÷Orcue.
O,Oc eocu
2,062,850,000
306
. ¸r. ≥:˙c
eçc.cce:ucO
er._. - ..cc ≥:˙c ..c.c O,¬†c.
rôe: O..c-cc cOec O :. -¸cc cco.
:. ¸u.u
500,000,000 400,000,000
115
-u: ec¸ rc..uc
o..c...c
O.:u c¸ ç .,u.
26,940,000
116
÷.cr.c ÷:
oc.ucc eOe_ç
o..c...c
c¸.÷.r o,÷c,: c.õcc †˙.,uo. ÷j:.
÷:u...c, c.:. O.u: õõ. uc.c ÷÷..O
õ÷u zooº Oc.ecç ÷:¸ o.ucuc rôe:ç
o,c O c.¬ o.Oc.crc .,u..
295,000,000
117
Oc.c :. .:. ..c.
o..c...c
O.:u c¸ ç .,u.¸ er._. cOc OOcO.
o.eo. ..c.c r¬Oc ÷O ercO¸c.c çrO.
er.O÷ :. ¸cc, o.eo. ..c.c ÷Oc.uc
rô., er._. - rOu.cr o.eo. ..c.c
÷Oc.uc, :.c.ucc ÷.¸c ÷õ..uc
:. ¸u†cu ÷..c oOe-..c. .õ÷. ÷j:.
÷:..ç: :. ∞cr .ç¸ e.o., c.cec..,
c.:..uc, r¸.:c ..c. O..c-cc, çr.
c_.c o.eo. ..c. ÷Oc.uc, -÷u.:c
c_.ec .. u,..`` cOec O .:..u
÷Oc.uc rôe: O,¬÷O:u cOec u..˙r
ceç.O¸ oc.ucc ..c. ÷Oc.uc
3,000,000 1,615,617,262
118
r-.rc. o..c...c .uu.c: †÷crrec oc.uccO oOc,u
O :uc.Oe. o.:.c ÷cr.cc.O o,c rô.
:. „Oeu.c.c ÷Oc.uc, õc¸ r¸.cc
:uc.Oe. „Oeu.c.c ÷Oc.uc :.
÷:c..cO O,¬÷O:u rc.c.r rô., O.:u
c¸ç .,u., cç.¸ c¬u¬
20,000,000 94,700,000
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
çcO¸c ccc ccO. rO≥oOr...
121 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Department of Inland
Revenue, Department of Customs and Department
of Excise. This process is managed through the
a long term financing arrangement from the Asian
Development Bank (ADB). The project focus is on
two distinct but interrelated components i.e. the
introduction of Information Technology Systems at
the Inland Revenue Department, namely Revenue
Administration Management Information System
(RAMIS) and the Ministry of Finance and Planning
namely Integrated Treasury Management Information
System (ITMIS), and institutional and social capacity
development (Box 5).
In addition, the Tax Interpretation Committee and Tax
Appeals Commission which were established in 2011
(Box 6) and the measures introduced to simplify the
systems and procedures are expected to encourage
tax compliance with uniform treatment while avoiding
administrative discretions.
2014
.·.. .,. :_..·:.~ .·.c·. .|-
285
r-.rc.
eçc.cce:ucO
÷:¸ u.c.çucO o∞¸ -: uc.ecu õccO
cc ceç.O¸ e..ou occ e-∞ç. :. zo¡+
ocO,c ec.:u. ouO r-.r.ccr oc..÷
õç..¸ O,¬ †c. rô..
257,024,285
119
õ≥¸-¸ :. -¸.rc
o..c...c
O.:u c¸ç .,u..
12,000,000
120
_.. ÷Oc.u :.
r.uc. rOcc
o..c...c
O.:u c¸ ç .,u.¸ r,rΩ ¸∞u _..
o.cr.. O,¬÷O:u ÷j:. ¸ç c∞u
..:.c rô., e..¬u,.¸ r¸ e.o.,
¸-¬ :. r.cc.¸ ¸crc., cuc :.
cuec.crc., r.cc.¸ c:÷r: cΩ¸ rô.
:. :.cr _.. o.cr.r o.r.˙c ÷j:. cç.¸
c¬u¬.
67,500,000 39,750,000
121
c.:. c˙c.¸u :.
÷Oeç. rOcc
o..c...c
c_.c c.¸u O..c-cc, O.:u c¸ ç .,u.,
-≥ r¸ ÷: c_.c c.¸u o.ccu -≥,
e..¬u,.¸ oΩcO,¬c.O, ¸cc, :. u,e.
u:c c_.cO¸O . ¸r. ¸‚euc, e÷O., .
¸r. õç..c.r e÷O. ÷: . ¸r. c˙c.¸u
e÷O. u¸..ôu :. ... u_..ôu -jO.
.,u. ÷j:. õc.. c,O,co.
100,000 50,570,000
254
ec‚÷O.c :uc.¸
eçc.cce:ucO
e..¬u,.¸ r¸ e.o: e÷O. ÷j:. õcç:
49,600,000
255
†÷cr e¸r:
r.cc.¸c - er._.
oc..÷¸.c ¸c....ôu ÷ç:. ç.u.
50,000,000
256
†÷cr e¸r:
r.cc.¸c-.:c:
oc..÷¸.c ¸c....ôu ÷ç:. ç.u., -≥ r¸
:. c_.c c.¸u o.ccu -≥.
210,876,707
257
†÷cr e¸r:
r.cc.¸c-rΩcc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u. :. ..u
õcç:.
80,800,000
258
†÷cr e¸r:
r.cc.¸c-.:uOc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u. :.
c:ec e÷Orcu ÷j:. eçc¸ .c ec.¸
e.o..
151,250,000
259
†÷cr e¸r:
r.cc.¸c-..ce¸
oc..÷¸.c ¸c....ôu ÷ç:. ç.u.
72,800,000
261
†÷cr e¸r:
r.cc.¸c-..¸¸
oc..÷¸.c ¸c....ôu ÷ç:. ç.u.,
crr¸.¸¸ ÷: rcueçuc †÷cr e¸r:
r.cc.¸cu: uO e..¬u,.¸ ¸†rô. :.
e..¬u,.¸ cuc,c..cuc :. O,¬†c.
rô..
100,000,000 1,985,000
262
†÷cr e¸r:
r.cc.¸c-..cc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u.,
155,700,000
263
†÷cr e¸r:
r.cc.¸c-::-uec.O
oc..÷¸.c ¸c....ôu ÷ç:. ç.u. e.o. :.
e÷O. :. õ... .,uoe: cc¸.c e.o..
142,860,950
264
†÷cr e¸r:
r.cc.¸c- rcec˙c
c.cuc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u., o.:.c
c.¸u :. u¸ o,∫: , c:ec u¸..ôu ÷j:.
eçc¸ .c ÷: ec.¸ e.o., cç.¸ c¬u¬,
e..¬u,.¸ :. ¸†rô:, :¸c :. õ≥¸c
151,952,000
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
çcO¸c ccc ccO. rO≥oOr...
122 8 FISCAL MANAGEMENT R
The overall policy strategy of the Government,
enunciated in the Mahinda Chinthana - Vision for
the Future, the Development Policy Framework of
the Government, aims at attaining a rapid economic
transformation to a modern, environmentally-friendly
and well-connected rural-urban economy consolidating
Sri Lanka as a competitive emerging economy that can
create employment opportunities and greater social
advancement. To achieve this, the importance of making
a constant refinement in policy strategies to tackle
immediate term problems to address downside risks and
to sustain medium-term prospects of high investment
and growth momentum with economic stability has
been recognised.
In line with this, the fiscal strategy of the Government
has been designed to reduce the budget deficit and
public debt on a sustainable basis to maintain them well
within the level required to support public spending
without crowding out private sector expansion.
Accordingly, priority has been assigned in the fiscal
management to further consolidate the deficit reduction
path achieved in the recent past by reducing the deficit
from a high level of 9.9 percent of GDP in 2009 to 6.9
percent in 2011 and to around 6.2 percent in 2012. A
further improvement is expected in the fiscal operations
with the reduction of the budget deficit and anticipated
economic expansion over the medium term.
Fiscal Strategy in the
Medium Term
The Government will continue to protect public
investment in the medium term to expand the
infrastructure facilities necessary to stimulate the
economy. The reduction in fiscal deficit is to be achieved
in a framework of maintaining public investment at
around 6 percent of GDP. These adjustments are aimed
at the revenue account to phase out its underlying
deficit. Consequently, revenue deficit has been reduced
from 3.7 percent of GDP in 2009 to 1.1 percent in 2011
and it is expected to reduce further to 0.8 percent in
2012. The medium term adjustments are expected to
generate a surplus in the revenue account in support of
further reduction in the overall budget deficit below 5
percent of GDP.
Given the several major challenges that the country
had to face over the last few years, both externally and
internally, the reaching of the fiscal targets outlined
in previous Fiscal Management Report in terms of the
Fiscal Management (Responsibility) Act (FMRA) No.
3 of 2003 has taken a longer than expected time. The
ongoing tax reforms, tax administration reforms, and
improvements in the public expenditure management
are expected to provide a greater fiscal consolidation in
the medium term.
The medium term fiscal policy framework envisages
phasing out the budget deficit gradually to encourage
private sector participation in economic activities
towards stable high economic growth with stability of
around 8 percent. Hence, the strategy envisages to:
Achieve a surplus in the revenue account over the
medium term by improving revenue buoyancy and
Reduce the budget deficit to below 5 percent
of GDP by 2015 without compromising public
investment.
Reduce the outstanding Government debt to
around 65 percent of GDP by 2015 and lower it
further thereafter.
Ensure the welfare expenditure to protect
vulnerable sectors in society.
In achieving the medium term adjustments, the
transformation is expected to come from the revenue
account through the creation of a revenue surplus
in the medium term. Accordingly, a combination of
growth-friendly, revenue enhancing and expenditure
rationalization measures is being implemented to
strengthen the fiscal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
country’s tax system and to make it more investment-
friendly. The fiscal policy strategy also encompasses the
development of infrastructure in the country to create
an enabling environment to facilitate the private sector
investment while promoting inclusive growth and food
security.
This strategy has to be implemented in the context of
an uncertain world economic and financial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive fiscal tightening in advanced
economies, political unrest in the Middle Eastern
countries and the slow progress in the US economy
impose unfavourable impact on the Sri Lankan economy
in sustaining its adjustments. The medium term macro
fiscal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
.·.. .,. :_..·:.~ .·.c·. .|-
265
†÷cr e¸r:
r.cc.¸c-rcec˙c
.uu.c.
oΩcu -jO..c oc..÷¸.c ¸c....ôu O
ç.u. e.o..
17,280,000
266
†÷cr e¸r:
r.cc.¸c-rcec˙c
Oouc.O
oΩcu -jO..c oc..÷¸.c ¸c....ôu ÷ç:.
ç.u. e.o.. 36,840,000
267
†÷cr e¸r:
r.cc.¸c-rcec˙c
.¸co
oΩcu -jO..c oc..÷¸.c ¸c....ôu ÷ç:.
ç.u. e.o.. e..¬u,.¸ :. ¸†rô:. 24,000,000 54,000,000
268
†÷cr e¸r:
r.cc.¸c-rcec˙c
r¸eu.ccc
oΩcu -jO..c oc..÷¸.c ¸c....ôu ÷ç:.
ç.u. e.o.. 40,000,000
269
†÷cr e¸r:
r.cc.¸c-.¬r¸cO
zo¡+ ç,cO rc,_ :.cr cçc.ucO ÷...cO
c.eç.c ÷Oc.u rOcc ÷j:. Ou õcç:,
cç.¸ c¬u¬, ¸u.u, O.:u u¬cc, :¸c
:. õ≥¸c.
230,000,000 950,000,000
270
†÷cr e¸r:
r.cc.¸c-o:c.c
zo¡+ ¸cO rc,_ cçc.ucO ÷...cO c.eç.c
÷Oc.u rOcc :. cçc.u ccc ccc
÷r÷ rô., :.. e÷O.Ou ÷j:. Ou õcç:
÷: eOuc cuc.Occu õcç:, oc..÷¸.c
¸c....ôu ÷j:. ç.u..
116,060,000 600,000,000
271
†÷cr e¸r:
r.cc.¸c-
cr...¸c
zo¡+ ¸cO rc,_ cçc.ucO ÷...cO
c.eç.c ÷Oc.u rOcc, ¸c¸O. :. r.cc.¸
oO..c., :. oc..÷¸.c ¸c....ôu ÷ç:.
ç.u.
78,000,000 650,000,000
272
†÷cr e¸r:
r.cc.¸c-rc,.,.¸
oc..÷¸.c ¸c....ôu ÷ç:. ç.u..
409,000,000
274
†÷cr e¸r:
r.cc.¸c-ouc..ccc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u.¸ cç.¸
c¬u¬, ¸u.u, O.:u oΩcO,¬c.O :. e÷O..
106,312,000
275
†÷cr e¸r:
r.cc.¸c-
ec.e_.uuc,O
zo¡+ ¸cO rc,_ cçc.ucO ÷...cO c.eç.c
÷Oc.u rOcc, oc..÷¸.c ¸c....ôu
÷ç:. ç.u. :. ec.e_.uuc,O †÷cr e¸r:
r.cc.¸c ÷ç:. u¸ uO÷ ¸†rô..
40,000,000 360,000,000
277
†÷cr e¸r:
r.cc.¸c-e...c..¸
zo¡+ ocO,c ec.:u. ouO O,Oc O,¬o.
:. „Ou õcç: ç.u.O :. cuc :.
cuec.crc. c¸ç .,u..
3,550,000 50,000,000
278
†÷cr e¸r:
r.cc.¸c-ccucc
oc..÷¸.c ¸c....ôu ÷ç:. ç.u. :. cç.¸
c¬u¬.
233,500,000
279
†÷cr e¸r:
r.cc.¸c-r,.¸¸
oc..÷¸.c ¸c....ôu ÷ç:. ç.u. :.
¸u.u õcç:
120,475,000
122
:u.... :. cO-cc
o..c...c
O.:u c¸ ç .,u., ec.≥ c.:. ..¬¸c
c.:. u.cr ÷.ΩO ÷j:. :u ÷uueoçu
o.ccu ..u .::uc.O ¸uOc rô..
231,000,000 23,000,000
c,cc¸
cooc
o..c...c
eçc.cce:ucO
r.c.c oro.Oorr o...r
çcO¸c ccc ccO. rO≥oOr...
123 15 FISCAL MANAGEMENT R
reduction of taxes on importation of machinery
and equipment to encourage mechanization of the
economic activities, the introduction/scaling up of
Cess on products that Sri Lanka has a comparative
advantage to have a fair competition, continuation of
the Special Commodity Levy (SCL), which has unified
the multiple taxes applied on most essential consumer
items and bringing the export of items in raw form to
relatively high tax rates to encourage the domestic
value addition are the key measures introduced in
international trade-related taxes. Meanwhile, the
discouragement of the consumption of liquor and
cigarettes with stringent measures to prevent illicit
liquor, drugs and narcotics with periodic revisions to
relevant excise duty rates will continue to be the policy
direction on such items in the future as well.
Further improvements in the tax system, which are
necessary to achieve the fiscal sector objectives, will
be introduced in the medium term while ensuring the
credibility of the tax policy. Accordingly, the tax system
will be consolidated further while keeping the 2011 tax
reforms as the base.
Reforms in Tax Administration
The Government has clearly identified the necessity of
improving tax administration to realize the expected
outcome from tax policy reforms. In line with this,
tax policy reforms are being complemented by the
introduction of measures to improve tax administration.
As Sri Lanka is gradually being consolidated as a
middle income country with a rapidly expanding
service sector, the introduction of an automated
system in tax administration while linking all the
revenue and related agencies has become a strong
necessity. The development of the human resources
in these institutions to manage such a system
to address tax administration related issues and
application of information technology is also given
priority. Accordingly, a major institutional reform
drive is in place targeting the Depart