By Paneetha Ameresekere

The IMF’s second tranche of US$ 168.1 million will not be disbursed until the enhancement in the VAT rate is authorized by Parliament.

This was indicated to reporters by IMF’s Mission Chief to Sri Lanka Jaewoo Lee at a media conference in Colombo yesterday. Government’s bid to increase the VAT rate by four percentage points to 15% was twice stalled by the Supreme Court (SC) recently which said government had not following proper procedures when forwarding such a Bill to the Legislature.

Cabinet however, recently approved the restructured VAT (Amendment) Bill which is yet to be tabled in Parliament.

The fact that the second IMF tranche would be stalled was predicted by this newspaper in an article titled ‘Digitize revenue to meet IMF conditions’ in its 14 September 2016 issue.

It said, ‘…Central Bank of Sri Lanka (CBSL) Governor Dr. Indrajit Coomaraswamy recently told reporters that he’s confident of getting the next IMF tranche, ie another US$ 168.1 million tranche according to him because GoSL had met IMF’s end June targets. But going forward is a problem because of the stalling of government’s enhanced revenue measures by the Supreme Court (SC).

….Nonetheless, Coomaraswamy may be a little too optimistic if he thinks that just because the GoSL met IMF’s end June targets that it would receive its second IMF tranche. This reporter knows that when it came to the IMF’s immediately preceding facility to GoSL, ie a standby arrangement for $ 2.6 billion entered into in July 2009 during the Mahinda Rajapaksa regime, of which the final tranche was disbursed three years later, in between, disbursements were held back not due to the fact that GoSL had not met preceding targets, but due to the ‘waywardness’ of GoSL not meeting IMF targets, going forward….’

Meanwhile, Sri Lanka has entered into an extended facility fund agreement (EFFA) for US$ 1.5 billion with the IMF, spanning a three year period going up to June 2019, where one of the key conditions was imposition of a higher revenue tax from the current 12.1% of GDP (as per 2015 official estimates) to 15% by the end of the EFFA programme, ie in June 2019. Conforming to this requirement, GoSL adopted several revenue enhancement measures, culminating in increasing the VAT rate to the aforesaid 15% and also making the retail and wholesale trade also liable to VAT, in May 2016. In a seeming ‘applause’ of this move, the IMF released the first tranche, in June, the following month. However, subsequently, the VAT increase was blocked when the SC ruled against it twice citing government’s failure to follow laid down procedure.

Meanwhile, Lee, with respect to revenue reforms, said that revenue authority digitization was very much on the agenda in their talks with the GoSL. The EFFA is to be disbursed bi-annually in seven tranches.

Courtesy:Ceylon Today