Sri Lanka’s tax policies key contributor to 2022 economic slump

Colombo, Oct 16 (PTI) Sri Lanka’s tax policies have contributed to the island’s 2022 economic meltdown, according to the New York-based Human Rights Watch.

The non-profit group called for scrapping the tax holidays allowed for corporates as it leads to abuse.

In a 101-page report released here on Wednesday, the Human Rights Watch (HRW) contends that historically the Sri Lankan governments had “adopted policies that resulted in inadequate revenues contributing not only to Sri Lanka defaulting on its debt but also to a decades long decline in public education spending as a share of GDP to among the lowest in the world”.

Sri Lanka in April 2022 declared its sovereign default as the island’s economy went bankrupt.

“Low corporate and personal tax revenues have led to an average of 80 per cent of taxes coming from goods and services which generally are regressive because they claim a higher share of poorer people’s income,” the report adds.

The report says in 2022, the cost of tax exemptions reached as high as 56 per cent of the government revenue.

Commenting on the IMF bailout which caused Sri Lanka’s economic revival after bankruptcy, the HRW says as a result of external debt restructuring, which is a prerequisite to the IMF facility, in 2024 the government paid 57 per cent of its revenue to creditors.

The report opined that “the government should consider eliminating corporate tax exemptions given their high cost, questionable effectiveness, and vulnerability to abuse”.

The HRW stresses that Sri Lanka is a case where many governments are deprived of the necessary revenue to fulfil human rights.

“Sri Lanka’s economic quagmire makes clear that growth alone is not enough to fulfil human rights, the government should finally establish a progressive tax system and use its income so that it adequately funds education and other public services that benefit all Sri Lankans,” the HRW says. PTI CORR GSP GSP