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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 unied
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 scal 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 identied 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 nancing 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
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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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 unied
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 scal 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 identied 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 nancing 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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z! c,cO:u . _r. ..u...u .._ec ._. :::Oc 76
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,o<o III .cO o.c.r c.rc 134
,o<o IV zo! o.c5 o:e5u: :. c.r O c_ cr_cu 143
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 unied
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 scal 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 identied 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 nancing 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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** fuu jdr;dj uqo,a wud;HdxYfha f,aljrhd iska bm;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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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c.:. ._. :. o.c.r :::Oc c_-j rc. c: rccu zo+ .c . oOu Ou O .::u:.OO
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Ou o:c, c:ec c.:. ._. re..c.cO .ecr.O c:ec ._. rc.r.:Oc o.c.O cu5 Ou rc.
o:_:eo. c:u cu: erO5c: eOu 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 unied
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 scal 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 identied 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 nancing 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+ .r + o: o.o. o. ro:.ro< (O.ro) c:cr !, > cc t
O.:r cOcr .o, o o.r.Ooc. c: :rr ro: .
zoo+ or + cu c.:. ._. r_.u.rc. (O.r.) cue: !, : e O.u: ouO c:u cu: erO5c:
c.c_e5u:eo eOuOc rcOu uec ._ o..:.Occ. 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.
ocOc j:. cu5 O c_ re..c.cr c.-:.Ocu : c.:. ._. re..c.c :. .: c.:. ._. c:c::c
rc.:.r re5 O.: c :r cc 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 unied
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 scal 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 identied 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 nancing 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
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2009 2010 2011 2012 2013
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cOc:uc :_ eO. o.ecu - ocre5 cO:u
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O ocOc :.c zoz Oc.ec ccO e.! rO.: zo+
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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. :. .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
ou.c::.Ocu : oOu5 :.: -OO .c.rO
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re5 oO..:.Oc cu ecuO. eu _-c. ...
r._u .cO c.:. ._. c..O O.O or ..u rO.
o:.
...r._u c.:. ._. cr..:.Oc .r:.: re5
Oc_eO_ :_ o.c. O rc.u. c..u:.
..rcr eo. zo ocOc :_u :uO. u uO
- O.:cO c:D.c rOcu c.:ec - o.c.
.e.u. c:.:cr e_ ccO e rO. O _rc
c: :_ ..O.rO e.u c.O oecr.. rcu o:c
...r._uO e.. :::Oc :O cO: .r:.: rc
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e_O o.c5 -, cr: r_ o.c .: -, :.:c
e..u.e5 -, u.c.u - : oeur: eO_
c.. cu5 rc.: - Oc. :uO. c :r.
o.ce.: c:: OeOcu :-. cO.:.Oc c..
:::OcO c:o uO: o.c. Ooe5 cO.:.Oc
o.c5c o o: o:c c. :::Oc e.c o.c.r rOc:
Oc. 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 unied
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 scal 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 identied 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 nancing 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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ocOc rOc: Oc. r. j:. c.:. ._. o.ec
c:rc. r. 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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r_ o.c .: - r.c :_ .uu. _ c..u
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:Oe_ rcu e:.. e:. __c O..c.ccr
e:. :u c._ecre. cc5O_ r.c:Or
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- cuOu ..O c.c_cu oo O O. o
eu.c c: e_O c_ r..
:.:c e..u.e5 - O.:c c_ rcu O
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oe:. rccu e:.. :. __c eO_. .:
:.:c e..u.e5 - cuOu _. :O, c_.:
cOO5 - oe:. r. e::eOu c_.:
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u cr: rcu _-u :.:c e..u.e5 -
o.ce.u + r c_.: c. eO: _-. e5
o.c5 e- .ue5 r.eocr :uO. ..
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 unied
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 scal 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 identied 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 nancing 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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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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.r:.: r.O rOc: rccu - c:c::ec
Ouc:Oc ::Oc r. :. 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 unied
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 scal 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 identied 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 nancing 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_.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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e.. c.:c :uO. e.u e.c o.c5 ec.c:e5u:eo c. r.cc._ rc.O_ Ocrcrc.c
erec. c..u c.:. o.c. O rc .u.O: :. uOc : r._.uc,c e:.c:c _-. .u.
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r5, ce, u.r... o. rOc: :O. c..r.: c.:cr :c:. Ou o:. ce.u.
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e.c o.c5 r.cc._ ..-. rO. O..c: r.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 unied
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 scal 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 identied 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 nancing 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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r_.u.rc. c.:c :. cr.-.O rOc: rcu o:. e.. O..c:c rc.:.r re.u c:ec ._
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c.....c e:.c:c r_.u.rc. c.:c ..c: r. :. er.c.eo 5u. c.c.c.
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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:re:.-c oO.uc Ou O occ.Du. + r ..crO c: rcu _. : occ.Du. z u ++ r 5cc.ecu
_r. -_. oOu o:c :u cr..cO c: r.O ucc:O o:. occ.Du. r :. :u _-. o:. ::
occ.Du.O_O o.:cO zo+ :re:.-c Ou O uO occ.Du. r _- o:. c. uO occ.Du. c_- e:.c:c
c:: O.eo rO. o:.
co.c.o: o<. o.: cc.o ro: - c.o:. c.-..O
- r..c occ.Du.
-..O
O: rc.:
occ.Du.
-..O
..cO
c:
rcu _
occ.Du.
-..O
ocu cO:u
occ.Du.
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o. oOu
: :u
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occ.Du.
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uec.. ur:
rcu _ occ.Du.
-..O
o.rc.cO
ec.. rcu
_ -..O
o.c5 - 48 1 3 18 18 8 3
c.o.-. 22 1 11 10 3
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76 1 3 20 33 19 6
._..c - occ.Du. er.c.
zo ..c: rcu _- - occ.Du. er.c.
: - u: oc. uc,c. rcOO ..u cc._u
oc.:cu .. :ccu c.c..:.Oc :_
uo. :c:. - our_:.Oc :_ uo.
-_ec.ec.:: eo. zo oec_ ..ec c:OOu
_ - u: oc. uc,c. rcOO ..u -
cc._uec: c.c..:.Oc, .Ouc:Oc
: .::.Oc ::Oc erecu o:c. e.c
o.c5 ec.c:e5u: u_..ue. creurO
cccc oc. uc,cu _-. . O_ro. :_u -
our_:.Oc :_ uo. -_.ec.ec.:: eo.
zo or z+ cu - occ.Du. er.cu c.
cu: cOe: - occ.Du. er.c. c:OOu _
o:c -rc.c c_- coucue.u .u:
O..u .._cr u - occ.Du. ju
_-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 unied
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 scal 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 identied 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 nancing 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 oO :o,c< rOO
- cc._uc c:rc.c re5 c..u o.cr e_ zooe or e cu e.c o.c5 cue: ...ucuO
ouO zo oec_ . - u: oc. uc,cu rcOO c:OOu _. e.cu - cc._uec c.c..:.Oc,
.Ouc:Oc : .::.Oc ::Oc erecu o:c. u_..u u creurO cccc oc. uc,cu _-.
. O_r. : - our_:.Oc cO:O. .u. -_.ec.ec.:: eo. e.. rcOeo c..uc. e_ e.c
o.c5 ec.c:e5u:eo e:... uec.:. er... :uc._ rOc: rcu _-c. zo+ ocOc ec.:u. ..u
cr..cO c: r_ c oc. uc,c.cr _-. . 5-u. r._ r. .. e r eo.
zo+ :re:.-c + Ou O rcOO u oO.. z r :. oc. uc,c. _-. o: o:c u oz r o_
c.c.Ocu ze r u rcOO eO: rcu _- __5 o:u e:.c..: cO. eo. e.e:r oc. uc,cu ur:
eu.rcu _ __5 :O cO: e:.c:c rO5 rc o: : uO __5O_u .u: eo.
c:: O.eOu uc,cuc Ou c O. oc. uc,cu -..Or o.c5 - :. o_ Ou o:c :c
o.c.reO. ..:, cr: r_ o.c .: -, :.:c e..u.e5 -, .c - : :.O :. -O_O
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or -
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cr: r_ o.c .: - -c.O 10
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rcu _ occ.Du.
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
ecO5 - .. :_o r. 1
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r cu5 _r5-c., .e._, e-_c,, c_:uc :
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oecr.. erec. e.- .5 ..u cr cOO_ ..
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-._.e.c uuc.O eu.ceo (e...:) ouc (e...:)
e-_c. c.uc 1..uc (c:) :c_u:c
ru.O :._c c.r:.uc (e...:) :.c_u:c
cuc :c.uc c_cuc cr: oc.- ccc c.:.c (c:)
eu..crc (e...:) er.c.O ec._u:c cr: oc.- ccc c.:.c (c_)
c.c reoOc rO.c cr: c.:..uc
cu_u:c .e_c.O (e...:) ce5uc.O oe.r. cr: :ucc
:c.uc (e...:) .cc cc.O oe.r. cr: :ucc (Protocol)
e:.er. (c:) euc._c O oc.-c.O (c:) c.u..c
._..c e.c o.c5 ec.c:e5u:O
c .r.O co. rO -ro< .cO cOr: oOO (zcI+ crcr.-o Oc.:c O: O)
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 unied
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 scal 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 identied 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 nancing 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. .|-
cco cOc: >
o.o. .ccc r.oc o<. ro:.ro<c
c:ec c:c:: c..O :_ Oc.u oc.:.c.cu _.. rc .u. :. ..uO 5c: c.:
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::Oc r. e. r5_: O::rcu :. ._cc .crcu :. c.:. o.cO o:_:oe5
oO.. c_ r_ c:O o:. e5 :. c.:. o.ec eO. oO..:.Ocu r._uO o.c.O _r
rc .O.._O_u : r.ccr o.c:uO_u r5 _-uuu -O. .u.O rOc: rccu
cO:. :.crr ..uO 5c: r_.u.rc.cr oO..:.Oc :u..ucu ,. o.cr. c_ O
o..cucr re.u ou:cO r.cc .._ oO..:.Oc c_- ..e_.Ducu rcu _-c.
zo+ Oc.ec :u +o u Ou O c.:. eOec .. eOr -..O c_cu .+ r c.. c.
c o:u c_cu . r c.. eOr -..Or :. :.:r ocOc ..u OOc e.Ou _-u
o:c o...cu : e-. o.cu: eOr -..O :_ o.cr .u. c.:. eO. cc5
c_ o.: .. euc : r.ccr u_.. Ou O::rcu c.:. eOcO -O. .ue5
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:.r.r o.c:ucu: r.r.D.cc :. ce.r :u:c _rc c: -..Oru O rcu
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-..O rcrO :_ uO. o:. c. 5c: re.:ec: c..uc e. ,. c.e.c e_r5
er.....crO. c.e.c :O u.c.u :. e-. crrcr -.u c:Oo. :. .u _-
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o.o. cO ro:.ro<c
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eo. cO:u. ._. 5c: o:_: ec-c o..:...O_
rc.r.cr5 r_.u.rc.c rc .u. c -5
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rc.r. o. :. ec_..O rOc: erec. .
o.O_ c.c.OrcOue. : .::u:.Oe. c_
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oc. c.:. o.c:u c.:. ._. uc 5-u.ecu
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c5 r_.u.rc.cr cO:O. .u.O :r o o:.
u. cu . o.c5 cOrO oO.. c : c.:.
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o.r.cecu ._ ec._. eOu r. :. rOc:
rccu :e. c.:. c5 r_.u.rc.c :. uO
c.: : ec._. :uO. .O oecr.. erec. c
o:c r.ccr.. :. c_c e_ c:ec ..uO 5c:
r_.u.rc.c :. eOr -.. r_.u.rc.c :.
o.c5 rc.r.cr5 rc.:.r rccu :e. O.:.:.r
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c:c:: rc...c. :uO.. o-.O Ou o:.
ec.: cr.-. c.....c r_.u.rc. e:.c:c
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r.ccr.. Ou o:. r._ ccerc.c (Time
Slicing) Ou r. c.:. r. ..u r.ccr..
:. c_.c c.:. c5 r_.u.rc.cr o: r.
oO..c.c rc o:. c_c eu.Ou c5 o
r. :. c.-:.O ecu e.e:c5 c5 O.:
e:.ju o.r..c r.O ccOc e.u :e. c.:.
c5c.uec cO:u .OO_O c_c5 e_ c.:.
eOec c.: c.:cu j:. O.o. Oc. r.O
c5c.u r.cc c5c.5O_O oO.. e...u
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 :
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.. os :_ :u:c !,! r og:u o: rcu _.
zoz Oc :_ c.... oc.._.cu z,ooo r c.:. eOcO -O. .u _- o:c .c.r e_ c:.O u.
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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 unied
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 scal 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 identied 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 nancing 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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rcu _. e.. c5c.u rcOO_O :.c o. :. o:.O.. :. c_r. .c.u :.. c_ .u. :..
eOu O :.r.. o.c5 rcO z r c: rcu _.
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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r.cc..uc oecr.: ..O.O O. o Oueu
u5 cc ce. ocucu erec: -_c,5 o: rcu
_-c. eOu: u. cu eO_ec._ o.c.r rc. ce.
ocucu O..c: rc_. e.u. cuc :. :c.uc
.. ec.: u: eO_ .5 ru5 rc_e5
O.:r. e...u .: er.O rOc. e. u.c
eO_ec.e_ D_:.Ocu . cO:o.O c..r
.: -reo .::o5 .. rcu o:c., u.c
ouc.: u..._:.Oc cO:O. .u. : eOu:
O.:.:.r eOur5 :uO. . Ou rc...c.
ocucu .: r. :. 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
o,r.: o.o. o. rco.c.c:
o - ouc.: : c_ - cu.r ::O
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oO..:.Ocu : rcr o o. e::eOu c.:. .c
c.: ..O.r cO:O. .u.
c:ec .c r_.u.rc.c :_ e.c :. e.c
.c :_ 5c..cr cO:O. .u.
c.:. ._. uc.Oc : O.o. O c. r.
cocr o.o. o. crcrr rc.OO :,.o
cc. O: c..: rc.o.o.
- ouc.:O_ orcr eOuo5 O_r. - cu.
c_ r. erec: oO..uc ec.. rccu
o.c. Oc.uc r.O rc...c. .u.
u: :. ec._. .r:.: r. :_u - e.o.
c:c :. : .. :. O_ro.O oO..
rc...c. .u.
..:c :_ c.OO c:c :r c_c. oO..
c._cu eOueOu o.c5 :.cr OO:u
cO:O.e.u c..
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o: _-. .u. O c. r.
e.c o.c5 ec.c:e5u:O : ._ :.
r.5c.u o..:...c :. c_eO_u o.c5
cc._u :. e:.c:c r_.u.rc. c.:cr
(RAMIS) : cr.-. c.....c e:.c:c
r_.u.rc. c.:cr (ITMIS) :uO. .
c:cO oc: O.: O..c.c eO: c...u cr:Oc
:_ uo. :_u cO. ._..c O.ecu .r:.:
o.c:u -OO c: r.
. o.c5 _-u cOrO ._ecu c ce. ._.
ec._. c:e...uc : c.O:r._u r.
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 unied
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 scal 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 identied 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 nancing 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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c- O.or.O zcI!
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O.rr cOcr .o, o_ o.r.Ooc. cr rrr ror _.
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c: o:c cc c:u cu: erO5c: c.ce5u:eo eOuOc rcOu uec c.ce5u:OO c: r_ c:
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oOe-..cr -. .u.O :r Ou c e.. r.ccecO o_ c..u .cO o.c.r cu:u e.. O.c:.eo
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e:.c:c, e.. crcuOO o_ c :r oOu5 ..r : c.:. .. r.cc..uc erec: -c,.r o:
r_ :r oeur: e:.c:c 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 unied
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 scal 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 identied 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 nancing 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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og:u :uO. eu - :u - ouc.: r.c
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cec.:uc .: O cr: r_ o.c - o.c.
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o:. oc:. r:ccr .: crr cucu e -
cuo. e::eOu e - o.c. c. ccu ze,+
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-u O e..Oc c. o.ucuc o o. : 5O5 :
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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c.:. O..c.c u rcu -u .c :. .c..
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zoz Oec c_. .. :_ c:ec c. O c. -cu
,z O .ecr.O zo+ Oec c. r.c :_ . c.
c. -cu ,z r c. e.. c5, Oc:u c.
c. -cu zo ru : c.:. o.ec.:u c. -cu +e
ru .u: eo. Oc:u c5 ccO +.s ru :_
.c o:c c.:. o.ec.:u ccO !.o ru c:_
e.. o:.
u.c ouc.:cu: Duc : e.c .c ec._
ouc.:c .ecr. O.ecu c:_ ..O.r cO:.
e::eOu zoz Oec e.. r.ec .e.uecu
ccO !.+ r O ec._ e.o5 ouc.:c e..
Oc.ec ccO !.z r c. ceO : cO:u ..r.c
O.:.Oc.ec: c:ccr e o.cr.r rOc:
:. 5-u. c5c.u c5 c:_ .ecc. c.:.
.. rc.r.:OcO oOr.. . .u. :.
c:c u oeur: c.. :. eO. .: Ou c5
r_.u.rc.c :. .r:.: rc...c. o.c5c
rc :e.
c.:. .. rOc:O cO: ocec...:.r :::Oc
...ec OO o.c.r rOc: c o.O c:r5
. :. c.:. o.ec.:u o-.O rcu .
:.:r c5: c:r5 Oc.u O..c: rc.:.r
rcu -u o:c, u..``, .. u..``, ..
u..``, cc u..`` Ou c.e.c :. ..cc Oc.u
O..c:u oeur: c.e.c :. ..cc Oc.u
OO:u :. e.. oO..uc ec.. rcu .
o...cu, e-.c : O::c c:. o. ..uO 5c:
Oc.u O..c:u o-.O rc.:.r c. zo+
c_. .. :_ c.:. o.ec.:u .e.u. c:.:cr
e ccO !.z r c.

c:ec . c. :. c:ec . o.c. o:c eOu Ou
ocOc :.c Oec c_. .. uOc :_ c. -cu !z
r e:O: .e.uec c:.:cr e ccO .e r c.
cc zoz Oec c. r.c :_ c. -cu !s+ e:O:
.e.u. c:.:cr e ccO e.! r c. o.c5
..e5 :.c r_.u.rc.c re5 c:c c:c:
c:c o:rce.u o: o:c o.c. rc c:
oo.r cO:u :::Ocr cOe: ec._ eu.Ou c5
rc c: e .c. .u. e::eOu o.c5
..e5 :.c zoo oO.uec .e.uecu ccO +.
O zo+ c:5-c Ou O ccO .e r rO. o o.
:_u e.c c_-. eo.
Oec c_. .. uOc :. Ou :.Or.r o.cu :
zoz Oc :. uuu.:.r o.cu + O.O cOe:
c: rc o:. o.c5 -O o-. Oc.uc, cr:
r_ o.c .: - c eO_. :. c re5
5cc. -c,. o: o., o.ucu c.. :::OcO
c:o. : e.c o.c.r rc.r.cr5 eo.O: o.
..u Oec oOu r.c:O :_ o.c5 OOu o:
-OO oecr.. erec. zo Oec :uO. eu
- uO - r.c ..u e-u o.c. r...rO
OOu 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. eu
.c5 rc...c.O -c,e.u o.c.rc r..urO
c.. :::OcO c:o., -r O.:.O Oc.uc o.,
o.ec.:u .. O..c.cO - 5cu r.c
oOu o., - u: r5 O.: :.crrc.c r.
: uO - r.ec r.ccr..:.O uO.. c
e:.c:c :.r.r OOcO.Or :uO. . : ..uO
5c: Oc.uc ..u - cc.uc .r:.:
r. ..u o.c. :_ cu o:c oecr.. erec.
o.ce5 rcr Oo.: ocOc ..Ou :_ c.:.
c5 r_.u.rc.c cc e o.r..c r.:
:_u zo+ ocOc ..u ueouc rcu c
.e.u.c.:ecu ccO .s r ocOc :.cr cO:O.
.u.O :r eO:c -.ec.ec.:: eo.
Oc..c:uc o.r o. e::eOu : ..:.
cec.:uc :_ c.. : ..: 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 unied
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 scal 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 identied 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 nancing 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. - ..ec ..
:::Oc c:c: O o:c c..u c: e.e:c5
cOc o rc .: :r c. -u: e: u.c.:
:. Ou cc.: c ..u e...uc r.
: :.:.u:c e: ce: :. u.c ouc.:ec:
.ecr. O.ecu .... Ducu r. -u:
e: u:.: ..eo e.e:c5 o.cc o rc
.u.O cr. Ou o:. ec.r o.ec o.c.r
rc.r.cr5OO c:r5 cc.O .. o.c:u :_
5c: cO. .u.O e:: eOcu c:cO oc: r.
- ..c :. -u: e: u:.: ..O cu
O..c.c eer: .. :::Oc Oc.uc o. o.c.rec
.: O.:. ..O. :_ uo.O e:: Ou o:.
ce.u. eO_ec._ O.:.Oc :_ uo. e::
er.O .ucu eO_ec._ ec._ ouc.:r o o. :
:u...c .: Ou cuc o o. :_u c.:. ..
rc.r.cr5 .r:.: r.O e:: Ou o:.
::rc .cO o.c.r ccc, c5: c:r5 :.
O :c.c c.:. o.ec.:u : ceO: cO:u ...r.c
+ O.O > cO,c c.o..cc
o,. _cr
croc
oror orc,c 2012
rr.
2013
(,crcOrr )
2012 2013
rr.
2012 2013
r.Or._r
o.c5 : cu 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
cu 8,291 2,339 14,399 3,017 16,071 20,000
co 833,048 862,400 1,257,437 1,275,085 1,556,500 1,712,426
Oc:u c. 589,059 595,187 886,193 920,017 1,131,023 1,224,927
OOc 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)
.cO c.c () rrrc() (67,960) (113,442) (126,278) (139,799) (79,562) (41,761)
cocr cO,c c.c () rrrc() (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
e. ..uc 70,116 72,937 161,752 95,379 180,760 149,873
e.c ..uc 233,542 305,380 321,371 396,471 308,207 359,387
o.c..e.u. (`) 6.9 5.5 10.1 9.0 13.9 13.6
Oc:u c5.e.u. (`) 7.8 6.8 11.7 10.6 14.9 14.1
c.:. o.ec.:u.e.u. (`) 3.4 3.2 5.1 4.2 5.9 5.8
o.c5 :.c.e.u. (`) -0.9 -1.3 -1.7 -1.6 -1.0 -0.5
.: ocOc :.c.e.u. (`) -4.0 -4.3 -6.4 -5.6 -6.4 -5.8
...c c.:. .. c:c:: ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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- or eOc_ O..c.c rOc: :. u: Oc.cu : -u.: ce. e :u..: ce., . cu:-zo+
O.: eru..u uec.. or , zo+ : u: or ss+o cu o: e.. .. ueouc ..u
cr..cO c: rcu .
- zo+ : Ou u O e.r ,. re. r .: Ou e.. eO_ c.. - ccc +o rO. O rcu

- zo+ : + O ec..., -Oc, r o.:.c, e..c, c ou:c.: O uO5 c : .Oc r .: O o.ucu ec.
- re. r .: c. zoo r e:. ccO +o ouc.:cr eO e...uc rcu .
- zo+ : + u O O.c.r r.. eOu eu.rcu c:c ...c c..O ccO so O O. o, c:,
...c : oeur: c:.c c.u Oc. OccrO c. ,oo r e o.ucu ec.- cuOu .
- 5O5, c.O, ..ce., 5O. ,.O .uu. 5er._ e:. o.e.rcu : c.. cO.:uc :. O
e..Oc c. :. O u.c.u - zo+ : + u O e...uc rcu .
- zo+ : + Ou O u re. r .: Ou e.. eO_ c.. - c. z r rO. O rcu .
- zo+ oe..: zz O e.r ,. re. r .: Ou e.. eO_ c.. - c. + rO. :_ .u .
- zo+ oe..: zz Ou O oc:.c re. r .: Ou e.. eO_ c.. - c. !o r rO. :_
.u .
- zo+ c:5-c z Ou O O ocucuc .: Ou e - ouc.:c e...uc rcu .
- zo+ oec zo Ou O ..: c:: O.eo reOu o.r.ccO e...u rcu .
cco cOcr
c..r crcrroc rc.o.o. orO. crcr.-o zcI+
- zo+ ec-cO. zz Ou O -cO:eOu c e.c -u: e: c ..u c:: O.eo
:u c e...uc rcu .
zcI+ cc-oO. zz cO ccc -ro cr_ _ .<rO_ cOrc O
croc _ (_OocrO o,cc_) cOrc (o,cc_)
14.12.2012 23.02.2013
ecO-:re.u o 159 162 3
ecO-:re.u 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+ cc_ oc cO -_c,O,rcOr c c _.r. ocor _ccc..r. cr.co cr ror ror _
_ ..cr O.cc
cc.orc (orr) zcI+ cc_ I rO. O ..cr zcI+ cc_ zc cO cc.r rc.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. - ..c : c.:. O..c.c ec.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 unied
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 scal 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 identied 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 nancing 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 e.c :.
e.c ocec.. ...ec OO zo+ Oc.ec c_. ..
:_ o.c.rc ccO e. ru Oc.uc c. e..Oc c.
o.ucuc o o. :_ c :. o..: eO.O e..ecu
r- eO. .: oc:c: -c,.r o: r_ r5,
D.cr, oeur: eO. : u.c.u o. re.:
o:: eO. 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 c.rcO ouO (c.r
Oc.c zooeo =oo) O.c.r r...c cu. .:
..uc rcu -u ..uc zo+ Oc.ec c:5-c
oO.uec ccO e.z r O o:c zoz Oc.c
oO.uec cc ccO .z r e O.c:. c.
zoz Oc.ec ccO .e r O O.c.r ...u. ..uc
zo+ Oc.ec c_. .. :_ ccO .s r c. :_
o.c.r Oc.ucr oc.. rc .ucu .: -rO u
ou..uc rcu : . c:c::c ..
eO_ec._ ec._ ouc.:r r.ecu o o.r
ecuu5 rc o:. ce.u., ec.r o.cO -.
eu .c c...c O Ou o:c oecr.. erec.
u.c ouc.:rc :_ u...:Ocru cO:O.
.u., .c c.c.c :. .. cuo. : e:.c..:
o.ucu : e..Oc c. :. ec. - :_ c. Ou
rc...c. :e eO_ e..c c o. O_rO. .u.O
rOc: r. :_u e. o.ec .: Oc.ucr
o: rc .u.O :r c. c ouO, zoz Oc.ec o.e..
ccu e,se r O .: eO_ e..c zo+ Oc.ec .
.. :_ ccO z. ru cu5 o.e.. ccu e,zz
rO. o O o:c cc e.O5 e..c ::rc ..O.r
cO:O. .u.O cr. c. D.cr rc..u:ecu
o.c. ccO z!.z ru o.e.. ccu ss+ rO. O
o.: eOr ec.. ccO .! ru o.e.. ccu
!,zz rO. O o.: e.O5 e..c .r:.: rc
.u.O cr. o o:. ce. -u: e: u.c.u,
e..Oc c. : c.ec..r c.. o.ucuc o o.
e.O5 :uc c:c: rc .u.O cr o o:. e.O5
e..ec .rc:.Ocu O_rO. .u. :. ocucu
.: r., o.e.r e rcc -.r: ccOcu
c. r. : e.c o.:.c u.c.uc c. re5
O.: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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
! O.O > ,crcOrr.r c. rr. .co cc co or.c,c. zcI+
o,. -_cr
croc ,crcOrr r.Or._r cOrc
o .co 925.6 780.2 -145.4
- .co 840.9 706.7 -134.2
ccc .cO cc.orcOrrO
o.c5 : .c .: - 159.0 154.7 -4.3
cr: r_ o.c .: --e.c (..) 107.1 91.9 -15.2
:.:c e..u.e5 - (e.c) 25.8 15.6 -10.2
oeur: 2.4 1.9 -0.5
_c orrO 294.2 264.1 -30.2
co. cc.orcOrrO
o.ucu - 74.5 58.6 -16.0
cr: r_ o.c .: --o.ucu (..) 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
e.. eO_jc.. - 34.7 33.7 -1.1
u.c.u (e.. ...u -) 144.8 118.1 -26.7
5O5 .: u.c.u - 47.7 41.9 -5.8
-u: e: u.c.u 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.- cc.orcOrrO
.:cu 5er._ 52.2 46.1 -6.1
_c orrO 52.2 46.1 -6.1
crrr
e. - 18.8 18.1 -0.7
-c: ..: : oeur: 5.0 2.6 -2.4
_c orrO 23.8 20.7 -3.1
- cr.Or .co 84.7 73.5 -11.1
. c. 1,370.7 1,275.1 -95.7
Oorr cO 969.5 920.0 -49.5
OOc : eo:u 289.5 290.7 1.2
ec. e.o5 356.3 367.6 11.3
... OOc e.o5 90.6 91.5 0.9
c.:. .. : o.c:uOO cOc5 46.3 43.7 -2.6
oeur: 186.9 126.6 -60.3
c...r cO 401.2 355.1 -46.2
...c c.....c e.e:c5 ec.c:e5u:O : c.:. .. c:c:: ec.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 unied
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 scal 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 identied 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 nancing 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. .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%
'fj'n'
4%
fiia 3%
wfkl=;a 3%
n fkdjk 9%
wdh
n
20%
uq`M wdhf ixhq;sh
n,m;% .dia;= iy
wfkl=;a 3%
wdh n
22%
foaYSh mfNdackh u;
mok jQ n 28%
wdkhk u;
mok jQ n
47%
uq`M n wdhu-uQ,dY% wkqj
oocc .co
zo+ Oc.ec . .. :_ c:ec .: o.c.
c. ccu so,zs r O o:c cc zoz Oec c.
r.c :. e5 ccO z. r O o.r.
o.c5 - ccO !.! ru e.c cec.:uc
.: Ou - ccO .z ru O O o:c o.ucu
.: cu5 O - o.c. ccO .+ ru o o.
cu rc. e::eOu .: - o.c. c. ccu
oe,es+ rO. ccO !.z ru Oc.uc o o:. c.
r.c :_ - eu.Ou o.c. c. ccu +,+ r
rO. ccO o ru o c. o.c5 - ccu
O e.o5 - : ec._c :. Ou - o.c.
_rc c: ..O.ru :_ c.. e::eOu o.c5
- o.c. rc c: Oc.ucr O.c:. rcu .
e.c o.c.r rc.r.cr5 ..u cr: r_ o.c .:
- o.c. ccO . ru O c. ce OO, e..Oc
c. o: o.ucuO .u..c Oc.uc o.ucu .:
cu5 Ou :.:c e..u.e5 -, cr: r_ o.c
.: -, u.c.u - :. Oc.c :. .Ou e:.Oec._
Oc.u - ..u o.c. oo. erec:
o::rc e -c.u . e.. eO_ c..
-eu :. e -eu o.ce.: rc c:
Oc.ucr ecuoc. .: -r .c cOc5, c:c :
O.: O..c.cO .c :. .c.. cOc5 oo.
e::eOu - eu.Ou o.c. ccO o.o ru o c.
O.O > o.o. .cO r.occ..rcc c.rocrc (or c,c)
o,._cr
croc 2012 2013 Oo.rc (`)
- .co 678,105 706,683 4.2
.cO - 135,238 154,709 14.4
ccc cc.orc or crO O - 187,453 197,245 5.2
cr:r_ o.c .: - 82,675 91,855 11.1
u.c.u - 87,124 89,829 3.1
:.:c e..u.e5 - 17,654 15,561 (11.9)
.rcr or crO 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)
e.. eO_j c.. - 24,392 33,681 38.1
u.c.u - 76,887 74,387 (3.3)
e 23,555 26,399 12.1
-c: ..: : oeur: 18,896 22,630 19.8
- cr.Or .co 81,810 73,535 (10.1)
o - .co 759,915 780,218 2.7
...c c.....c e.e:c5 ec.c:e5u:O : c.:. .. c:c:: ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
orr r .c or -
zo+ Oc.ec . .. :_ cr: r_ o.c
.: .. - c...c zoz Oc.ec ouc,c r.
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ccO +.o ru O o o:. r.c:.c cOO. c.
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:. cr: r_ o.c .: - cuo., e.c
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.: - o.c. Oo. e::eOu e.c o.c.r
rOc:Ou c.o.-. o.c. c. ccu ,s
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e O o o:. ere eO::, eO_ e..c
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c_-. rccu o.ucuOu c.o.-. o.c.
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c rcu cr: r_ o.c .:- r.c :uO.
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- o.c e.o5 c. ccu +zz rO. ccO
s. ru o o o:.
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zo+ Oc.ec . .. uOc :_ o.c5 - ..u
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r Oc.ucr ecuu5 rc o:. o.c.r eO. ..:
ccO e!. ru c:_ .c ..c: :. ..c:
eu.Ou o.c5 - ccO . ru ccu O
e.o5 - ccO z. ru ec._ .: - ccO
+ ru O o. o.c5 - o.c. :_ Oc.uc
:. e:: o o:. zoz Oc.ec ouc,c r.
ccecO .ecr.O c. ccu e,e r O
..c: :. ..c: eu.Ou o.c5 - o.c.
zo+ Oc.ec :uO. - c:5-c r.c :_
ccO . ru cu5 c. ccu ,z! r rO.
Oc.uc o.r ecuu5 rc o:. zo+ ocOecu
-. u . O - u: r5 : - :u
...ec OO O.: -r, .. o.c:u :. cr..,
5er._ :. .:cu o.ucu :. ocucu eO_.
: u.c.u o. e.. Oc.uc :.
cr o o:.
OOc :_ c.., : D.cr, r5, .Ou eO.
: -r o. :_ o.c5 -u O::c eO.O
eO. ucr:c O o. e::eOu zoz Oc.ec
o_ r. ccecO .ecr.O e.. Oec
ccu O e.o5 - c. ccu !,z! r rO.
Oc.uc o o:. :O, c.:. o.ec eOrcu
ccu O e.o5 - cO:O o:_: r. e..
o.ec Oc.ucO .u.:.rO -c. o:.
zoz Oc.ec o_ r. cceec c. ccu
!,z r O ec._ .: - o.c. e.. Oec
ouc,c r. ccec :_ c. ccu e!, r
c. e.. Oc.uc e. - cu. c o.,
ec._ ouc.: :_ c.., c.....c -5rc :.
-c: ur: r. c..u O.ecu e:: o o:.

zoz Oc.ec o_ r. cceec c. ccu
+,ooe r O o.c.r eO. ..:Ou o.c.
zo+ Oc.ec c_. .. uOc :_ c. ccu !,e! r
rO. o O o:c .cc .: o.c5 - e.o.O cO:
1u,. O..c.ccr o.c. o.c.r eO. ..: Ou
u: r. : o.c.r eO. ..:OO cO: ..O
r.c:OrO c. ccu o rO. O r. e5 :.
e:: o o:. ere OO o.ucu :. ocucu,
u.c.u, r5 cu. o. o.c.r eO. ..:
o.c. erec: .u.:.rO cr o o:.
e O.O > .cO - r.occ..rc (or c,c zcI+)
o,._cr
- cro 2012 2013 Oo.rc (`)
..c: :. ..c: eu.Ou 61,659 71,273 15.9
ccuO e.o5 11,318 14,245 25.9
o.c.r eO. ..: 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:: ec.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 unied
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 scal 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 identied 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 nancing 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.r - c. co. -
u.c.u - :. c. - ..u zo+ Oc.ec :uO.
O c:5-c rO. r.c :_ o.c. zoz
Oec c. r.c :_ O.c:. r_ o.c.O .ecr.O
o.u:r Oo.r ecuOcu c. ccu e!,ze
r c. c.c OcO e.u. e.. r.c :_
.:cu, 5O5, e..Oc c. :. -u: e: u.c.u,
u.c.u - : c. -O c..u o.c5 ..c. c.
5O5 : .:cu oeec Oc.uc o o. :
e..Oc c. :. c.ec..r c..O o.ucuc o
o. ccu - o.ce.: Oc.u eo.c o o.O
e:: c. zoz eu.O5-c . :. zo+ : .
u.c.u :. c. - ouc.:cu O r. e...u
o.c. .... ..O.r cO:O. .u.O
:.c c.
e..Oc c. o.ucuc ..u o.c. zoz Oc.ec
r...O :. e5 ccO +.e c:.:cru o
o.r ecuOcu c. ccu e,oe r c. e..Oc
c. o.ucuc c.c OcO .ecr.O ccO zo
r c:.:cru o o. :: :::OcO e:: c.
zo+ Oc.ec c_. .. uOcr r.c :_ -u:
e: o..: u.c.uOu u.c.u - o.c.
c. ccu +,+ze r O o:c c. u.c.u ..::
o.cru c..r Oo.O : :uuc O o.
e::o o:.
zo+ Oc.ec c_. .. :_ 5O5 :_u
u.c.u - o.c. c. ccu !,e r O o:c cc
c.c OcO .ecr.O ccO .! ru O o.r.
e.. r.c :_ 5O5 u.c.uc ccO z.s ru
o o o:. ce OO: zoz :re:.-c . :
zo+ : . rcu u.c.u - ouc.:cu
O r. e.. u.c.u - o.c. O o.O
e:: c.
zoz Oec . .. :. e5 zo+ Oc.ec c.
r.c :_ ccO +. r c:.:cru Oo.r ::O
.:cuOu c.- o.c.
c. ccu !e,o r c. c..u O.ecu c .:cu
u.c.uc ccO +.! ru o OO c.c OcO O.
ccO +.s r Oc.ucr ::O c. ccu +,+! r
c..u -.e.u o:. ..u. .:cu (-cc) u.c.uc
zo+ c_. .. o :_ ccO . ru O c. zoz
:re:.-c . : zo+ : . c. - ouc.:cu
O r. e.. Oc.ucO e:: c. .:cu :.
5O5 cec.:uc oO. r. :. uO: re5
OO:u rc.:.r r5 c..u O.ecu .:cu :.
5O5 oec oo.O -c. o:.
rEm igyk 5 > ksIamdok n$iqrdn wdhf ldrahidOkh
^ck'-iema'&
0
10000
20000
30000
40000
50000
60000
70000
u;ameka je iy
fld<
fudagr r:
jdyk
Lksc f;,a wfkl=;a
2012 2013
r
e
'

,
sh
k
O.O > orr r .c or - r.occ..rc (orc,c)
o,._cr
- cro 2012 2013 Oo.rc (%)
c.o.-. - e.c 83,173 91,932 10.5
c.o.-. - o.ucu 91,073 85,235 -6.4
_ c.o.-. o.c. 174,246 177,168 1.7
c.o.-. o.c e.O5 2,490 322 -87.1
c.o.-.- .. o.c. 171,756 176,845 3.0
o.c e.O5 _ o.ce5 ` e 1.4 0.2
...c c.:. .. c:c:: ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
s O.O > roc.r - co.- .cO r.occ..rc (or c,c)
o,. _cr
- cro 2012 2013 Oo.rc (`)
.:cu 44,520 46,075 3.5
5O55er._ 39,804 41,965 5.4
e..Oc O.:u 63,335 61,061 -3.6
-u: e: u.c.u 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:: ec.c:e5u:O
O.O > OO, or roc.r - c.cc..rcr OO, 'ccco,.
Oo.c 2010
or
2010
cr
2010
cr.O,
2011
or
2011
cr
2012
o.o
2012
cr
%
zcc
o.or cO
zcIz cr.
rO.
2013
o_
5O5 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)
5O5 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)
5O5 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)
5O5 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)
5O5 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:: ec.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 unied
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 scal 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 identied 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 nancing 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. .|-
.rcr -
o.ucu - o.c. zo+ . .. :_ c. ccu
s,! r O o:c, zoz Oc.ec o_ r.c :_
d r_ c. ccu ,z :. e5 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, ecc_ cu. o.ucu -
u: c.. o.ucuc, . r.O u uc.O
:. cr..uc .. c_7 o: c.c.r :.
r.cc u: eO_ .5 cOe: e.cOO c..
o.ucuc r. : o.ec.:u .5 cOe: o.ucu
- u: cOe: c.. o.ucuc r. e..
o.ucu - o.c. c:_ c..O -c.u . ere
OO, e.c rc5 u.c.uc Oc.uc re5
oc.u o.ucur rc5 :. O - :u o
r., 5er._ :. Ou o.ucu -, -cc, ...c
: 5O5 :. Ou o.ucu - :_ c. e..
o.ucu - o.c. erec: .u.:.rO -c.u .
cco cO .<. -
e:.c..: eO_ c.. .: cuO. o: :u -r
Ou e.. eOe_ c.. - ..u zoz Oc.ec
. .. :_ c. ccu z!,+z r o.c.O
.ecr.O zo+ c. r.c :_ o.c.
c. ccu ++,es r c. e.. eO_ c.. -
o_ Ou c.. c...c :_ uo. : e.c
r.rc..u:c o.cr.. rc .u.O r..uc,cO
e.. eO_ c.. - ouc.:cu e...uc
r. e.. r.c :_ o.c. :_ c,.O cr.
c. c_O e:, u, e.r ,., .cc ccc .:
cuOu e.. c.. - e.. o.c.
d r.O .u.:.rO -c.u . ere OO,
oc:.c, e.r ,. cu. e.c u.c.ucue.
Oc.uc e::eOu e.. c.. o.ucuc .. o.
u. u o.c. o c. oOuu euu r.
..Ou: , e.c e..c.O .c cOu cr
-. e.u e.c e..c. o.cr.. r.O e..
eO_ c.. - cuo.:, e.c oOuu eu..:
r.cu : c..O c.ec..r c ..cO
cO:O. .u.O oO.. eOur5 r.: rcu .
o O.O > co.Oo oO O.cr .rcr cc rO _c.c.o rO (or c,c)
orrc c.-..O
croc .rcr rO _c.c.o ro
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. 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 ec.c:e5u:O : ec. ec.c:e5u:O
O.O > c..r rcc cO .cO rO _-. cr _ ro, - ccr cOcr .rcrc ror _
.<.O_ Or.ro (orc,c.zcI+)
rcc cOq .co ro,- ccr cqc. cOrOr
roc.r c.-..O
.rcr
(o,._cr)
uc. - . r. u: eO_j .. (SFTA) 4,635 36,548
c.r..u - . r. u: eO_j .. (PSFTA) 5,477 12,500
r. o.c. u: eO_j .. (SAFTA) 3,054 220
o.c. - ..u:rc eO_j .. (APTA) 499 1,228
orrO 13,665 50,496
...c ec. ec.c:e5u:O : eO_j :. o.ec.:u c:c:: ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
z O.O > cco cO .<. - rc.r
r..,ocO o,.
croc zcIz c,crO-o Oc.rcO zcI+ c,crO-o Oc.rcO
:..u 10 10
o 50 40
c: ,. 25 15
--,. 50 35
,. 40 40
OO.u. - 5cc. 20 20
OO.u. - cc_ r_ 25 25
r - 5cc. 10 10
r - cc_ r_ 15 15
. oO 100 100
ccc -5cc. 18 18
ccc -cc_ r_ 22 22
c -r eu.r_ 25 25
c -r r_ 40 150
5u .. 75 100
u 20 27
100 110
rOc 100 100
rcrru 100 100
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5-r 250 275
rcO 75 75
e5 60 60
c 120 130
oc 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
:. 50 50
rcrru c5 150 150
c5 200 200
cOr: 100 110
o- oO 50 60
c.5 e: cc: eu.r_-c. 80 cc: eu.r_-c . 80
cc: r_-c. 90 cc: r_-c. 110
.. o` e:. r..,. , c. o cu
o.cue.u O
o` e:. r..,. O c. o cu
o.cue.u O
eO_ :. o.ec.:u c:c:: ec.c:e5u:O u ru .
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 unied
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 scal 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 identied 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 nancing 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 -
c_.: c. eO: ..c rcu c...ec: o o.
e.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.cc re5 ..:
o.ccu ccO o r cu5 c. ccu ,! r :
.c - :_u 5cc. o.c. Ou c. ccu
!,ez r e.. Oec . .. :_ c cOc. o:
rOc: Or.O :.c o. c c_.: c. eO:
..c rcu .
_ c.cc -
e. eO. .: cuO. :- . Or - eOuOO
zo or cu e. - cu: cOe: :uO.
u e. - ..u e.. Oc.ec . ..
:_ o.c. ccO .! ru Oc.uc c. cu5
zoz Oc.ec c. r.c :_ c. ccu e,z r O c.
o.c. zo+ Oc.ec c. ccu s,+! r c.
e. o.ec c.:. rcu -u cue:.crc. :
o. :.r.r crc. o.ucuc : c .u.
:. O cr: r_ o.c .: - u: r. e::eOu
e.. o.c :_ o.ec.:u rc eceuu e Oc.uc
c. ue.u:c :. :c c_.: :_ e.
eO.eo o-. O..c:c : :: 5ec..c :.
o: :_ g. e.. Oc.ucO O: c.
:. ... c... O..c.c .uoe5 oc.u
:.:c e..u.e5 -eu (:..e...-.) u: ..O
1u,. O..c.c rOc::r :. r.c:OrO ccc
ccu + r e:. OcrO ccc ccu z r rO.
O r. : u: r5 e::eOu e.c o.c.r
rOc: :_u :.:c e..u.e5 - o.c. ccO
z ru ccc ccu ,e r rO. c:: OO.
ere eO::, e.c u.c.u o.ec cu5 o.:.c,
-., c-c u.c.u : eO. cc5 o. cu5
r, o.cr.r : c re5 : o...cu eO.
: D.cr rc..u:ec c-.: .. Oc.uc O
e:.O, oOu:, o.:.c c.u cc. : :.u.c5
o.cu :_u e.c O.ecu :.:c e..u.e5
- o.ce.: Oc.ucr O.c:. c. ce.u. e..Oc
c. O.:u, .: crc., c.cur u.c.u, :. :.
-. o.ucucue. O er.Duc o.ucu .:
c. - zoz Oc.ec . .. :_ O.c:. r_
c. ccu z,o! e.. Oc.ec c. ccu ,zs
rO. o o.O e:: c.
- r.c c re5 oc.u zo Oc.ec :uO.
u o.c5 e- :e5 r.eoc cOe: e..
r.ccec :_ . :.:c e..u.e5 -
o.c. Ou c.ccu !o,o+! u + r cu5,
c. ccu +,+! r c_.: c. eO: ..c rcu .
O.O + > o.c...-., oo - cc co.Oo oO O.cr _c.c.o rcO ..cr r.occ..rc (or.c,c.)
o,. _cr
2012 2013 (r.Or._r) % cOrc - 2013/2012
croc 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
e.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
.c -** - 5,277 5,277 - 4,672 4,672 - -11 -11
e..Oc c. c.cc
re5 ..: ***
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 . er.c. : c.:. .. c:c:: ec.c:e5u:O
zo Oec O :.:c e..u.e5 - o.ce.u ccO ++ + r .... c:c u c_.: c. eO: ..c rcu e
zo Oec O .c - o.c. ..u cc 5cc. o.c. .... c:c u c_.: c. eO: ..c rcu e
e..Oc c. c.cc re5 ..:Ou .... c:c u cc o.ce.u c_.: c.OO ..c rcu 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
crrr -
zo+ Oc.ec . .. :_ c.. o.ucu .: cuOu
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e.. r.ccec :_ o.ucu .: oc rcu -u
e - o.c. c. ccu z!,+ r rO. ccO +.s
ru O O o:c e5 :. c..u O.ecu zoz Oc.c
oO.uec e:.c..: o.ucu :. e - cuo.
: e.u:, c.u .e., cr : O.eu :.
r5 re.:ec Oc.uc: .. o: O ge5
O o. e:: c. ere eO::, rc, rc.- u5 :.
Oc.r -u: O. o.ucuec o_ Ou e -
zoz e5-c ..ec :_ uOu -O g.
oo. e::eOu o. O. O.ecu rcu -u ocucu
.: cuO e - o.c. ccO z. ru c. ccu
z,zse r rO. o c. e5 ouO, ec.e:.c :u...cc
: O.: ec.. :u...cc :. oc. -. .
:_u r.rc..u:ec Oc.uc e. .r:cr
eOcu e.c o.c cr: rcu rc..u: cOc.uc
oc.. rc .ucu e:.c..: o.ucu : ocucu
c.. .: cuO. o: e - :_u zo+ c_. ..
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- cr.Or .co
.: - eu.Ou o.c. c.c Oc.ec . ..
:. e5 ccO o ru, cu5 zoz Oc.ec
c. ccu s,sos O zo+ Oc.ec c. ccu +,+
r rO. o c. zoz Oc.ec c. ccu z!, r O
.c : .c.. -5 zo+ Oc.ec c. ccu ,
rO. ccO z.s ru o O o:c . r. .: -reo
.c cO5 c. ccu !,+o r rO. ccO !+ ru
c:: O.. - eu.Ou o.ce.: o o.O c..u
O.ecu e:: c. ere u.:, zoz Oc.ec o_
r.ccec :. e5 r.5 : oc r5
ccO ! ru c. ccu z,!o r rO. O c.
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 unied
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 scal 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 identied 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 nancing 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. .cO o_r. cc_o<c (orO.c,cr,O-o)
o,. -_cr
croc 2012 2013
,cr.
2013
r.O.
-_c.r _ ro,<
o.c5 - 135.2 159.0 154.7 O.: -r, D.cr O..c.c, r5, e:.c:c :.r.. o.ec :
O::c eO. o.ec: :_ OOc -u :u:cO drc. oO.. :_
c..:, eO. cr our:Oc Oc.uc o. : c:ec eOrcue.
cr:Oc o:_: oe.u ccu O e.o5 - o.ce.: rc
eceuu Oc.ucr o: c. - cu. c o., c.....c -5rc
: c.....c -c: ur: r. : :_ ec._ ouc.: e::eOu
ec._c .: - o.c., o.c5 - o.c. :_ c..O cr c.
cr: r_ o.c
.: -
171.8 205.2 176.9 r.c:.c cOO. c. ccu oo O O. O e:.. : c eO_.
:. c.o.-. cuo., e:.O, o.cu... : o.:.c ccu eO. Ou
o.O :_ r.cc..uc : c rcu cr: r_ o.c .:
- r.c e::eOu c.o.-. - . o.c e.o5 o o. o. rc.
e.c c.o.-. o.c. O o.O e:: c. ere eO::, eO_ e..c
c o.O c_c.r O.ecu :uO. u c:c::.c rc...c., :_
u.c.u -, .c c.c.c :. O ..Ou : u.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 c.
u.c.u - 164.0 197.0 164.2 zo+ Oc.ec .:cu : 5O5 u.c.uc c:: OO. c .:
u.c.u - :_ c. u.c.u - o.c. :_ c..O O: c.
ere eO::, e..Oc c. O.:u o.ucuc .: u.c.u - :_
ce.u cg. Oc.ec e..Oc c. o.ucuc c:: O.. : u.c
ouc.: c:_ c.. e.. o.c. erec: o::rc e -c.u .
o.ucu - 59.6 74.5 58.6 e.. -O cO: Ou c.. o.ucuc c:_ c.. e.. o.c. erec:
o::rc e -c.u . ere eO::, e.c rc5 u.c.uc
cOc.uc re5 oc.u o.ucur rc5 :. O - :u o
r., 5er._ :. Ou o.ucu -, -cc, ...c : 5O5 :.
Ou o.ucu - :_ c.: e.. o.ucu - o.c. :_ c..O
.u.:.rO -c.u .
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, e..ecu. zo+ Oec .
c..ec , o.ucu c:_ c.. e:: c.
:.:c
e..u.e5
- (:..e...-.)
29.7 44.6 26.7 e.c u.c.u rc..u:O .u..c Oc.uc : o.ucuO
er.Duc :.:c e..u.e5 - o.c. o o.O e:: c. :.
... c... O..c.c .uoe5 oc.u :.:c e..u.e5 -
u: ..O zo+ :uO. O 1u,. O..c.r rOc::r :.
cOO. r.c:OrO c. ccu + r e:. OcrO c. ccu z r rO.
:_ c. e.c o.c.r rOc:Ou :..e...-. o.c. erec:
-c.u .
oeur: - 66.8 91.5 82.7 e.. eO_ c.. - o_ Ou c.. c...c :_ uo. :
e.c u.c.u rc.Oec: cO.:.Ocu .: e.. eO_ c.. -
ouc.:cu e...uc r. .: o.c. :_ c.. : ue.
- o.c. :_ c.. oeur: - o.c5 :_ c..O cr c.
- eu.Ou
o.c.
81.8 84.7 73.5 r.5 : oc r5 ..u o.c. :_ .c . r. .: -reo
.c cO5 c:_ c.. - eu.Ou o.c. o o.O c..u O.ecu
e:: c.
orrO 759.9 925.6 780.2
c.:. .. c:c:: ec.c:e5u:O u ru .
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
O.O I > o.o. cO r.occ..rc (zcI+ orO. cO c,cr,O-o rO.)
o,. _cr
2012 2013
cro.Oorr cO 886,193 920,017
OOc 257,421 290,720
... OOc 84,555 91,458
ec._ e.o5 321,491 367,572
oeur: c5 222,726 170,267
c...r cO 371,244 355,068
orrO 1,257,437 1,275,085
c-c..r cO
...u. _ :u er.OO oO..:. O r.
oc.. rc .ucu o-.O cO:O.e.u cu
c:ec -..u OO:u ..u zo+ Oc.ec
. .. :_ c:ec c..u .u. :.
O c. c. ccu ,s+ r c. zo+ Oc.ec
:uO. O c:5-c rO. O r. ccec
:_ . o.c5 ..O5 :_ 5u c.cu
:. :ec..:.O -. e.u, cc: c.cuO
cucu re.u : .. c:.cu eOueOu
c. ccu z,ez r Oc re.u ecc Oc.ec
o_ r. cceec c.O O. ccO eo.e
ru -..u c5 O rc o:. o.-..:
c.cOuO, .c.cO c:O c.cOue.
cOOO : c.cOue. e..ccuO -. u
..: o.cr.. c5 c. ccu z,sez r. cc
ecc Oc.ec o_ r. ..O :_ Oc r_ .O
O. ccO +.e r O o.r. ce.u. e.. r.
ccec :_ o.c r_.u.rc. rOc: :.
c:c u c.ccu ,!o r Oc rc o:. :.:ec
e-. :::Oc : ec... ..O. :_ uoe5
OO:u o-.O rc.:.r O o:c e.. Oc.ec
. .. :_ c :. O c5 c. ccu
,os r o o:. e5 cOe: ..: :. _cOu d
r-. .ue5 OO:u :. eu.ce :..
-. . cOc.uc r.O c. ccu ,!+o r
:ec.. OO:u :. c. ccu s : c.
o.:.c ec... OO:u :. c. ccu ,z
r Oc rc o:. e.. r. ccec :_ e.r
o.:.c OO:u cOe: c. ccu ez r e..
OO:u cOc.uc r. :. -. o:.
c. cu Oce cg. _.u :. eu.cec
o...cuc -. . cr.: re5 oc.u cr:O
c. ec_ec.:, c. u o5, ec...c
o.:.c, O.c ceo.c:, .rc:.Ou ece_u cg.
_.u :. c::, ......c : eu.cec :5
c. ec_ec.: -. . :. c:c u zo+ .
o.occ co
zo+ Oc.ec: . .. o :_ . c.:. c.
c. ccu ,z,os r c. u c. ccu zo,o
r cuc.Oc:u c5 Ou o:c c. ccu +,oes
r c...u c5 eo. ecc Oc.ec c. r.c ..
uuuc re5 e.. Oec cuc.Oc:u c5
ccO +.s ru :_ e.. o: o:c c...u c5
ccO !.! ru o o o:.
O,Oc c. c.o O,Oc
zo+ Oc.ec . .. :_ c:ec eOrcu :.
OOc : eo:u :. c. ccu zo,zo r Oc
rc o: o:c cc zoz Oc.ec c. r.c :_ c.O
.ecr.O ccO z. r :_ c..r ecuu5 rcc.
zo+ Oc.ec :uO. . O Ou c5 .u.O
..rO c. o- ru O r. : zo+ Oc.ec
.r OOc .: e.Ou e.. .u.O ccO ru
eO:.Or O r. zoz Oc.c :_ .u. rcrO
O oe5 cc. -c,. e.. OOc c5 Oo.O
.r e::u o:. ce. Oc.u u.. eO.
O.O..O cOe: uO u..u -O. .u. :
oeur: cccc. :. c:. c....u -O. .u.
e.. OOc c. O o.O e:: c.

zo+ Oc.ec . .. :_ ... OOc :. O .
c. c.ccu ,!s r O o:c cc
c.c Oc.ec o_ r. ccec :_ O c.O
.ecr.O ccO s.z r O o.r. zoz Oc.c :_
,ooo rO O cr og:u ... c.e5 cc.
-c,. : zo+ Oc.ec . .. o :_ ,zo r
og:u ... c.e5 oc. -c,. e.. ... OOc
c. O o.O o..r O.ecu e:: o o:.
ce. zoz Oc.ec , zooe O ecc ... .uOu
..crcue. ... OOc ..:.Ocu uOc r.O
ccOc .u.O zo+ Oc.ec :uO. O c:ec
..crcu :. c. oo ru Ou c5 .u.O O
r. ... OOc c5 O o.O :OcO:
cr c.
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 unied
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 scal 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 identied 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 nancing 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 cO (or.c,c.)
o,. _cr
croc 2012 2013
oOOo,r cc or
:ec.. OO:u : _c r o.:.c :u...cc ec... . 1,174 1,419
eu.cec ec_ec.: :. u o5 3,194 2,718
c. O.c ceo. c: 1,143 1,430
c. ec... o.:.c OO:u 2,750 1,952
r.or.or
ec.e:.c :u...cc 36,446 18,760
cc..r c.O
.. :u...cc 7,945 12,762
o.-..: c.cOuO :u...cc 11,017 11,970
o.:.c :u...c, .O:c : uc :u...c 1,852 967
...c :.:r ocOc ec.c:e5u:O
cc. cO
zo+ Oc.ec . .. uOc :_ e.c :. e.c .c
:. O ec._ e.o5 c. ccu +e, r O o:c
zoz c. r. ccecO .ecr.O cc ccO !.!
r O o.r. zoz Oc.ec . r. ccec :_
o.r e ccc oOc...c o.O .ecr.O r.
-u r. ccec :_ .ecr. O.ecu ..Oc
.. :_ c.ccu e,zss r Oc rc o:.
c:c u rc.:.r rcu Oeu.c.c :ec..:.
OO:u cOe: ec.e:.c :u...c OO:u,
-: cc., O o.O. : .c :u...c -. .
o-.O rc.:.r rccu r.r.ccr :. ..cc o.c.r
u.c ouc.:cr cO:. e.u. e.. r. ccec
:_ e.c .c :. Ou eO_ec._ ec._ ouc.:r
o ..O.r cO:. ec._ e.o5 erec: ::rc
e -c,eoc. zoz Oc.ec . .. :_ .e.u.
c:.:cr e ccO !.+ r O ec._ c5 zo+ c.
r. cceec ccO !.z r rO. o c.
rc.r.cr5 cOc.uc r. :. e.. r.cceec
c. ccu z,os! r Oc 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
o.o. .cc.or cO
zo+ c_. .. uOc :_ c.:. o.ec.:u OO:u
cOe: .:. ..c., o.eo. ..c., :5c.uc,
O...c., -, Oc.c :. .Oue:.Oc Oc.ucO
e.u., ..cc ( u.. :. .. u..) :. u..r
(cc u.. :. c.e.c Oc.u OO:u) :
o...cu, e-., c..cr o...cuc, o...cuc,
O::c c:.O, r., ecOu rOc: : Oeu.c.c
Oc.u cu. o.OO c O..c: ..Oe.u
5c: ec.. rcu -c. Oc.u rOc: eo.O:
rcu o:c. cg eu.O. c. Oc.u rOc:Ou
c:.c o:rc . : Ou ..O. r.O
cr. o. e5 :_u -.ec.ec.:: eo. zoo c_.
.. uOc :_ . c.:. o.ec.:u c...c c. -cu
+e r O o:c cc zo+ ocOc ..u rr.: c.:.
o.ec.:u c...ecu ccO o r c.
O.O Is > o.o. .cc.orc .cc.orc ror _
c..r .c rO (or.c,c)
o,. _cr
.cc 2012 2013
(r.Or._r)
..c. : c.5 104,110 101,025
c 33,824 29,145
Oc.c : .Ou eO. 14,397 15,036
O...c. 13,566 15,004
r..rc.c :. u.c.u 7,401 8,292
: 5c.uc 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
cc.uo.rc.
o.cr..O 5-u. :
oeur:
66,632 50,038
orrO 384,402 369,005
...c :.:r ocOc ec.c:e5u:O
O.O I > roc rc.rc cc oocc cdrOcr or c.Or cc. rc.rrcc c,co (`) zcIzzcI+
r._ cocc .<....o -_cr .<....o -,Oro c.o.r. roc
rc.rc
r I r Isz r +! Oo, z Oo, + Oo, ! Oo,
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
e 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 ec.c:e5u:O : c.:. .c ec.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 unied
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 scal 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 identied 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 nancing 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 o_ cO.ccc r.occ..rc
zoz Oc.ec c_. .. .. e5 zo+ o_
r.ccec :_ c.....ccO . .. c. ccO
+ ru O o o:. e.e:c5 :. oec.:u rc.r.cr5
:. c5Ou cO .. . :.c ccc -cu
es r O o:c cc zoz o_ r. ccec :.
e5 c. -cu e r O o.r. e.. Oo.O
c..u O.ecu e:: Oec zoz Oc.cO .ecr.O zo+
c_. .. :_ cuc.Oc:u c5 ccO ru :_
c..c. zo+ c:5-c . oO.uec cO: .:
O.O 19 > oocc o_ cO.c cr.cc
o,. _cr
croc
zcIz or c,c zcI+ or c,c
rr. ,crcOrr rr.
o.c5cr . e..c (:uO. uO) (97.8) (144.5) (144.5)
o.c5 :. eOu: -5 ..u .: . .. c5 702.7 895.0 723.8
e.e:c5 rc.r.cr5O .: . .. c,5 (832.9) (935.2) (921.6)
o.ec.:u rOc: :. .: . .. c,5 (373.0) (401.6) (370.4)
.. . o:r:c:.c (503.2) (441.8) (568.2)
_ .c .u5 1,024.7 1,143.0 1,133.7
.c o.c e.o5 (467.7) (659.7) (528.8)
.. .c .u5 557.0 483.3 604.9
.c5 ..e5 e..c !"#$% / .. :uc: cu.c) (54.1) 0.3 (13.1)
oO.u . e..c (c:5-c +o uO) (98.1) (102.7) (120.9)
...c c.....c e.e:c5 ec.c:e5u:O
CS-DRMS : O.c:. rc o: zo+o+o u rO. c:cO -. OO:u :. O..c: .c o:_: eo

. e..c (:.c) c. -cu z r O o:c, cc zoz
Oc.ec c:5-c . oO.uec cO: :.cO O.
c. -cu z+ r Oo.r.
o.o. <c ror.ro<c
zo+ . .. :_ c. -cu ,+! r .: _ .c
.u5 c...cr O.c:. rc o:. e.. r. ccec
:_ e.c :. e.c c.:. .c o.c e.o5
c. -cu z r O o:c .. .c .u5 c. -cu
eo r c.
O.O zo > ccc <c .,rOc _.r. c.Oo.r -,Oro
o._.O rrr r rc r_ co co.<c
(o,. _cr)
cc. rc.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
O.O 21 > ccc <c .,ro .<....o -_cr zcI+ (orO. c,cr,O-o)
rrr r rc co.<c (o,. _cr) -o r,- c.o.r. c,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 unied
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 scal 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 identied 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 nancing 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 > ccc <c .,rO.<....o -,Oro zcI+ (orO.o c,cr,O-o)
.<....o ,c ccrr cc. O.rO
ccoo ro
zo+ c:5-c +o oO.uec ur: r_ :.
O.O cO:u c.....c oc ::rO O5u.r.
c. -cu !z! r c. e.. oc ::rO o.c
zo+ or cu c.:. .. r_.u.rc. (O.r.)
(e...u) cu:u e...uc rcu zoo+ or
o._.O rrr r rc r_ co co.<c
(o,. _cr)
-o r,- c.o.r.
c,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
+ cu c.:. .. r_.u.rc. (O.r.) cu:
cOe: rO. o: c e.. Oec: :.
c.c Oc err ...u. .e.u.c.:ec
c:.:cr e ccO (ccc -cu ++)
r.O. eu..:. zo+ c:5-c +o u rO.
eu.ccO oc ::r c_- e:.c:c o...
II : rO. 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
cc o_.crc
cc o_.cr or.r.
e. 5c: ec.c:e5u:O .:: oe.u,
uO rc.:.r c.:. o.ec.:u OO:u :.
zo+ Oc.ec :uO. O c:5-c +o rO.
r.c :_ . e. Oc.u c.c.OrcOu
: .c eu o.c:u .. . r. c:c c_.
o: cr.:. c...c o.e.. ccu z,oez.
(c. ccu ze!,ssz.+) r. e.cu, o.e.. ccu
,!o.+ (c. ccu z!,zsz.) .c o...c Ou o:c
o.e.. ccu z.s r (c. ccu ,eoo.z r)
cc. cucu eo.
zo+ Oc.ec c:5-c +o Ou O o:u rcu
cg. .5 c:: O.eO: rO. o:.
O. O z+ > zcI+ Ooocc orO. cO c..cr rO. rcr ror _ cc o_.cr or.r. .cO
c.Oo.r
c.ocOro,<c
cr .crrc
O..c.r
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rcr r
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roc
orrc
co.<c
(_cr)
o,cc_
(_cr)
o.o.
c.._o
(_cr)
c.occ
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.: er._.,
5ec..ec :.
e-:e5 Ou :.u
oO. re5 O..c:c
ecu 15,941.0 20,740.8 158.8
.c 2013/03/14
:.:r ..c. c.:ec
c..u c.5 re5
O..c:c
ecu 12,381.0 16,325.6 129.2
.c 2013/03/14
:.:r ..c. c.: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 ce.ec
: 5c.u O..c:c
(occ )
ecu 5,166.0 6,811.9 53.9
cu 2013/03/18
r. :. ... c...
O.O.c j:. O..c:
eu.Ou cu o...c eOu
r.
ecu 200.0 266.4 2.1
cu 2013/03/18
eeO. crc. j:.
O..c: eu.Ou cu
o...c eOur.
(zo+)
ecu 550.0 732.5 5.8
cu 2013/03/18
Ocrc . r cu:
O..c:c ecu 988.0 1,315.9 10.4
cu 2013/03/18
. r.eo o.eo. ..c.
j:. cO.:u c.:ec
:.r..c c. re5
O..c:c
ecu 940.0 1252.0 9.9
cu 2013/08/22
..uO 5c: Oc.u
...:O OO: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 unied
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 scal 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 identied 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 nancing 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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mport Bank of
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c.Oo.r
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o.o.
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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mport Bank of
China
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of United States
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Paribas -Belgium
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c:c -.r: :. :.
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(_cr)
O.O 23 > rc...
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 unied
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 scal 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 identied 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 nancing 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.
..uc
cu 2013/07/15
ec...c :. o.:.c
cr.::.O j:. ..:.
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r.r.ccr c_e-..
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cu 2013/07/18
ue5 eru..ucr
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c.:c cOc:uc r.
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ou:c:.:r
Oc.uc j:. O
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er._. :.:r .:...c.
O..c:c

c.:.e.c 50.0 6,319.4 50.0
cr: :.:ue.
Oc.u OO:u
cu 2013/02/27
o.c:u -.uo. occ
ix
c.:.e.c 0.1 17.1 0.1
cu 2013/07/10
UN - REDD :.:r
OO:u zo+-zo
c.:.e.c 1.9 260.7 2.0
cu 2013/07/25
:c.c O Or .r:
u.c.uc cOc.uc r.
c.:.e.c 4.0 526.1 4.0
cu 2013/07/25
..uO oc:O.r5
er.c. j:. :.c -
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cu 2013/07/17
O..c: r_.u.rc. :.
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c.:.e.c 0.2 29.5 0.2
cu 2013/08/13
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r., cr:.c :. ..:
cr.-.:.OcO ceo. o.
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O..c.r
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orrc
co.<c
(_cr)
o,cc_
(_cr)
o.o.
c.._o
(_cr)
O.O 23 > rc...
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
cr: :.:ue.
:u.:u oc.
cu 2013/06/07
...:.r c:uu e-.
eO.Or -.. j:.
:.:r ..:.Oc .r:.:
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cr: :.:ue. _..
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cu 2013/02/27
UNCEF OO:u
2013 - 2017
c.:.e.c 50.2 6,401.0 50.2
cr: :.:ue.
rc..u: Oc.u
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cu 2013/01/15
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..:.Oc c r.
c.:.e.c 1.5 193.0 1.5
orrO 264,882.3 2,062.1
igyk ( tla tla foaY uqo,a ksuh tallfhka w;aika lrk,o uqo,a m%udKhkag w, tlai;a ckmo fvd,r yd remsh,a m%udKhka .Kkh
lsf w< .siq w;aika l< kfha mej;s ksuh wkqmd;slhka Nd; lr we;'
uQ,dY%h ( foaY im;a fomdr;fka;=j
e.. r. cceec c_e.u cr.:. c...c
c..u Oc.u c.c.OrcOu.c eu o.c:u
ouO O.O z! : rO. o: o:c, .c cr.:. .5
O. O z! > cc o_.cr or.r. (zcI+, orO.o c,cr,O-o)
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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: :ucc 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
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-cc.occ 617.6 80,105.2 88.9 11,433.0 706.5 91,538.2
o.c.uOc.u -r 371.2 47,936.8 1.5 189.5 372.7 48,126.3
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cr: :.:ue. uec.:
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igyk ( tla tla foaY uqo,a ksuh tallfhka w;aika lrk ,o uqo,a m%udKhkag wod< tlai;a ckmo fvd,r yd remsh,a m%udKhka .Kkh
lsrSf wod< .siq w;aika l< oskfha mej;s ksuh wkqmd;slhla Nd; lr we;'
uQ,dY%h ( foaY im;a fomdr;fka;=j
c:O o_ .c uc.cu ::O O.O z :
rO. o:.
c.Oo.r
c.ocOro,<c
cr .crrc
O..c.r
Oo.c
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rc
O..c.rc O.Oc.r
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orrc
co.<c
(_cr)
o,cc_
(_cr)
o.o.
c.._o
(_cr)
O.O 23 > rc...
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 unied
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 scal 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 identied 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 nancing 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.ucO reOu r. ccec :_ O.c:. O
. e. ..cu cr.:. c...ecu ccO z r
cuecu ccO zz r :c.uecu O.c:. o o:.
..O r rcu -u r. ..eo O.c:. O .
cr.:. c...ecu ccO eo.o r c5: c:r5
Oc.u :. O o:c, e.cu ccO +o r ..c. :.
c.5 r. :. c:rc.c, ccO e r : 5c.u
o.c :. ccO ! r -.r: :. ..cuc c.
rEm igyk 6 > foaY uQ,Hkh tl`.;djhka
ixjrOk yjq,alrejka wkqj 2013 ^ck'-iema'&
wfkl=;a 20]
tlai;
rdcOdksh 5]
f,dal
nexl=j 10]
wd'ix'ne' 18]
cmdkh 22]
kh 25]
rEm igyk 7 > foaY uQ,Hk tl`.;d wxY wkqj -2013 ^ck'-iema'&
fjk;a 14]
wOHdmkh yd
mqyqKq 10]
n,Yla;s
14]
fi!LH yd
iudc iqNidOkh 16]
c, imdokh 16]
uydudr. yd
md, 30]
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
cc o_.cr cr_-.r c.
_ccc.orcr
uO rc.:.r Oc.u O..c:u : cec.:uc
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ccu ,+!.o (c. ccu s,so.e) r. e.. c:.
O. O ze > zcI+ Ooocc orO. cO c,cr,O-o +c rO. cO cc o_.cr cr_-.r
(c.Oo.r c.ocOro,Or rO)
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cuc 56,865.3 442.8 - - 56,865.3 442.8
:c.uc 21,892.7 170.4 843.8 6.6 22,736.5 177.0
uc.O 20,679.7 161.4 - - 20,679.7 161.4
cc.O 8,156.7 64.6 - - 8,156.7 64.6
c.uc

3,422.2 27.0 - - 3,422.2 27.0


eucu:c 5,580.1 43.5 - - 5,580.1 43.5
r. er.c.O 3,693.9 28.8 - - 3,693.9 28.8
ouc 2,127.9 16.6 - - 2,127.9 16.6
c.,,c 1,501.2 11.8 - - 1,501.2 11.8
1e.c.O 1,333.7 10.5 - - 1,333.7 10.5
o.r. cr: :ucc - - 1,230.8 9.5 1,230.8 9.5
:5c.O 1,181.2 9.2 - - 1,181.2 9.2
:e.c.O 1,198.2 9.1 - - 1,198.2 9.1
c.c 660.0 5.2 - - 660.0 5.2
e-c. 242.2 1.9 - - 242.2 1.9
eu..crc 422.1 3.2 - - 422.1 3.2
:c.uc 174.5 1.3 24.7 0.2 199.2 1.5
eoc.-c 898.8 6.8 - - 898.8 6.8
reo. 73.9 0.6 - - 73.9 0.6
-cc.occ 45,769.7 356.1 917.4 7.0 46,687.1 363.1
o.c.u Oc.u -rO 26,407.1 204.1 294.5 2.3 26,701.6 206.4
e.r -rO - ou:c :.:r Oc.u
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e.r -rO - Oc.uc :.
c:rc.c j:. O ou:c:.:r -rO
4,058.6 32.1 - - 4,058.6 32.1
r.r.ccr Oc.uc j:. O
ou:c:.:r oc.
762.6 5.9 - - 762.6 5.9
:ecr oc. 362.8 2.8 - - 362.8 2.8
cr: :.:ue. Oc.u OO:u - - 125.5 0.9 125.5 0.9
o.:.c :. r.rc. ..uc - - 262.8 2.0 262.8 2.0
orrO 175,873.9 1,370.7 3,016.7 23.3 178,890.6 1,394.0
igyk ( ta ta foaY ksufhka isjQ m%;s,ka" remsh,a yd t'c'fvd,r j,ska .Kkh lsf" ta ta m%;s,h isjQ kg w< ksuh
wkqmd;slhka Nd; lr we;' 1' fuu m%;s, i|yd brdk uQ,H moaO;sfha indOl n,mdk ,'
uQ,dY%h ( foaY im;a fomdr;fka;=j
c...ecu o.e.. ccu ,+o. (c. ccu ,s+.)
r c...cr .c .: rc.:.r Ou O..c:u:
cec.:uc O o:c o.e..ccu z+.+ (c.ccu
+,oe.) r c...cr cc. cu .: rc.:.r Ou
O..c:u : cec.:uc c.
e.. r. cceec O c:. c...c cr
cr Oc.u c.c.Orc ouO O.O ze rO. o:.
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 unied
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 scal 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 identied 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 nancing 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. .|-
zo+ Oec :uO. O c:5-c rO. O.c:. O .
c:. o:u ccO +z r e:O: c. ccu e,se.+
r cuc u ..cuc r_ O..c:Ou O.c:.
O o:c, ccO + r e:O: ccc ccu z+,!.!
r :c.uc u ..cuc r_ O..c:Ou O.c:.
c. e.. r.c :_ e.r -rO, o.c.u Oc.u
-rO :. r.r.ccr Oc.uc :. O ou:c:.:r
oc. Ou -:c.c.c Oc.u c.c.OrcOue.
u ..cuc O c crO ru r_ ccO ze r
e:O: c. ccu !e,es. r c...cr c:. o o:.
zo+ :uO. O c:5-c rO. O.c:. O c:.u
o:u ccO s r c.5 :. ..c. r5 :.
c:rc. :. O.c:. O o:c, ccO r, ccO
e r : ccO r c_eOu -.r:, : 5c.u
:. O...c. O..c:u : cec.:uc c.
rEm igyk 8 > foaY uQ,Hhk Wmfhdackh-ixjrOk
yjq,alrejka wkqj 2013 ^ck'-iema'&
wfkl=;a 13]
reishdj 5]
fkor,ka;h 3]
f,dal
nexl=j 8]
bkahdj 11]
cmdkh 13]
wd'ix'ne' 15]
kh 32]
rEm igyk 9 > foaY uQ,Hhk Wmfhdackh-wxY wkqj 2013
^ck'-iema'&
wfkl=;a 13]
jdudr. iy w< lghq;= 3]
fi!LH iy iudc
iqN idOkh 4]
wOHdmkh iy
mqyqKq 5]
c, imdokh 6]
ksjdi yd kd.l
ixjrOkh 2]
,sn, yd
n,Yla;s 8]
uyd udr. yd md, 58]
,r ro.r or.r.OcrO rO cO
_ccc.orc oO rcr ccoc
c:ec Oc.u O..c:u : cec.:uc r. :.
zo+ Oc.ec c:5-c +o Ou O cec.:uc o.O
o: e. ..cu c...c o.e.. ccu s,o+.e r.
O..c:cr rc.:.r Ou ...u. r.c Oc z- r
Ou o:c cec.:uc c. r. cc.c :_ Ou -O
rc :rc.
cr.:. c_ r_ ce:: cO cec.:uc o.O o:
e. ..cuec o..r uc,c.cr c:.cc o :
c:.cc : Oc.u c.c.Orc ouO reo.
O. O z > zcI+ or.r. cr occr _ccc.orc oO rcr cc o_.cr co.<c
c.Oo.r c.ocOro, rO (zcI+ c,cr,O-o +c)
c.Oo.r c.ocOro, orcr orc c.._o (_cr)
cuc 1,928.7
:c.uc 1,500.2
o.c.u Oc.u -rO 1,230.8
e.r -rO 730.6
uc.O 680.7
c.uc 434.6
cc.O 235.4
cr: c.:..uc 237.1
cr: :.:ue. uec.:: o.c:u 147.8
er.c.O 136.4
e oc.-c 118.1
eOu: 713.2
orrO 8,093.6
uQ,dY%h( foaY im;a fomdr;fka;=j
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
rEm igyk 10 > tl`.;djh m< l< Wmfhdackh fkdjQ
foaY uQ,Hhk wxY wkqj 2013 ^ck'-iema'&
wfkl=;a 15]
jrdh iy kdjql 11]
fi!LH yd
iudc iqNidOkh 6]
wOHdmkh iy mqyqKq 4]
c, imdokh 11]
ksjdi yd kd.l
ixjrOkh 5]
lDIsldrl
yd jdrsudr. 7]
,sn, yd n,Yla;s 10]
udr. iy
md, 31]
rEm igyk 11 > tl`.;djh m< l< Wmfhdackh fkdjQ
foaY uQ,Hhk wxY wkqj 2013 ^ck'-iema'&
wfkl=;a 9]
ijq wruqo, 1]
wd'ix'ne' 15]
cmdkh
19]
f,dal nexl=j 9]
bkahdj 8]
brdkh 5]
kh 24]
reishdj 3]
fldhdj 2]
tlai;a cd;Skaf.a
ksfhda; wdh;k 3]
tlai;a rdcOdksh 2]
c.oO ,r cc <c co.<c cc
<c ccO.ro<c
zo+ c:5-c +o Ou O . r. c:c u .c
-. .: cr cr Oc.u c.c.OrcOuO e.o.O
:- e. .c c...c o.e.. -cu s. (c. -cu
z,!!.e) r.


zo+ c:5-c +o Ou O rc :- . .c
eO.rc. c...c o.e.. ccu . (c. ccu
1 fuu Kh f;d.h i|yd w< jkafka rch iska jHdmD;s fjkqfjka ,nd.;a Kh yd cd;Hka;r nelr tl;=f f.ug ;snQ fYaIhka f'
rdcH jHdmdr i|yd ,nd.;a Kh we;=<;a fkdf'
2 Kh fiajdlrK f. = Kh wdmiq f. + fmd,sh f. we;=<;ah' we'fvd' yd remsh,a w.hka weia;fka;= lr we;af;a 2013 wf.daia;=
31 kg mej;s ksuh wkqmd;slhkag wkqjh' rdcH jHdmdr i|yd ,nd.;a Kh fiajdlrK we;=<;a fkdf'
+o,ss.!) r.
z
e.cu o.e.. ccu ++.e
(c. ccu s,e.) r c...cr .c o.c e.o5
o.e.. ccu +s+. (c. ccu !,zz.+) r
c...cr ec.c e.o5 eo.
zo+ Oc.c :. cec.r.uc rcu .
.c eO.rc. c...c o.e.. ccu ,!+.o
(c. ccu eo,es.+) r O o:c, e.. Oc.ec
c:5-c +o Ou O 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 unied
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 scal 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 identied 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 nancing 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. .|-
cOc c_7- Ou ..c e...ucu, :crc
r._.r cccOcu, eccr c.c_ O.:cu
: c.c.cu, O.: re..c.cu : ourcr
c.cc : r_.u.rc.c :. c._uecu _-.
crcOc e:ceOu zo+ Oc.ec c_. .. c_
c:cO occ O.: O..O.cu : r.cc..uec
Oc.ucr ruO _-. c..u rc.r. c.:.
O.O.cu c .c Ocr5 cucu ccO
r _c, -u: ec_, :_c, Oc.c, .Ou ec.Oec._,
-r : cr.. cu re.ccu : c:cO occ
O.: O.O.ccu cO cOc.
cO cOc :.c.ucc ec_ c_ ..u :_ o.cr
cOc. Ou ocec.. :.eo cO. _r. _-_
.._c : _r. -u: ec_ uc.c ..O
Ou c..u re..c.cr c.:. O.O.cu e..
r.cc..ucr ecuu5 rcc. zoz Oc.ec
c. -_cu r o_.ccr O.cc. rcu _ ._..c
eu.Ou c:cO occ O.: O.O.cu zo+ Oc.ec
c_. .. c_ c. -_cu ++ r _.ccr O.cc.
r. e..ecu :u r_ ccc. ce.u. c.:.
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:.c.ucc cu c_ c:c O.. Ou e-.e:.
ocec.. :.eo OO e.. r._ ccec c_
c. -_cu zz r _.ccr O.cc. r.O .cO oc.
e.. Oc.uc r.cc..uc e:ceOu e-.e:..cr
c:c c O.: o.ccu -r c.cc eOc
e.o.O c- .c o.c e.Ou _. c. -_cu
r -r .c o.c e.o5 zo+ Oc.ec ._
.. c_ e.o.O :ro. e:ceOu eO_ec._
O._c.O .rc.c o. u. c._r o.ec .Ou
ec.Oec._ rOcc :. O .c c...cr
_-. .O c.:. -rO_O :r c. c:cO occ
O.: O..O.ccu : e.. ._. cccOc Oec
r._ ccec c_ cO cOc Oc.uc rc
.u. oc.. Ou occ c. -_cu z r .c -r
c.ccO o.c e.o. ..u eO_ec._ ec._
ouc.ccu o rc .u.c ec._r o.c :.
_-. eu .c c...c :_ uo.c oecr..
rcu _e.
ooc cr O.o O.Oc.ccr c r.occ..rc
co.c_.orc
r
e
'

,
sh
k
2011 2012 2013
iema;enr
2013
weia;fka;=
rEmigyk 12 > rch i;= uQ,H fkdjk jdc
jHjidhka ys ,dNhS;ajh
-200000
-150000
-100000
-50000
0
50000
rEmigyk 13 > rch i;= uQ,H jHjidhka ys ,dNhS;ajh
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2011 2012
r
e
'

,
sh
k
2013
iema;enr
2013
weia;fka;=
r
e
'

,
sh
k
2012/2011 2013 iema. /
2012
2012 foie. /
2013 weia;fka;=
rEmigyk 14 > nexl= Kh fYa Ihka ys jdr Is l fjkia
-150
-100
-50
0
50
100
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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 unied
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 scal 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 identied 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 nancing 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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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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
cco.rOr
1 _r. -rO 16,485 19,794 11,474 18,135
2 .::u -rO 15,600 15,249 6,571 10,250
3 :.cr c re5 -rO 9,255 6,169 1,787 5,396
4 c.:. r :. o.ec.:u -rO 688 436 331 457
5 uO. Oc.u : ._. .. -rO 321 73 248 320
6 _r. cc Oc.u -rO 124 294 242 340
7 c.e.c Oc.u -rO 1,875 1,493 868 1,739
8 . _r. c re5 -rO 494 594 562 726
orrO 44,842 44,102 22,083 37,363
O.O +o > ooc cr o_. O.Oc.ccr c _.crOc
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o OO .Ou eO. o.ec Oc.uc :. cO cOc
cccu . oO.. eo.
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. _r. Oc.c o.r.c u cOcOc c c.c_
c:r5 Oc.uc : ..c. c_ re5 rOccO_
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O.. c. ere OO, c...u cu. cO cOc
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c.ec..r .O.c ce_. cOcO.e.u c.e5
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r. r.ccr r.eocu: cO_c. : Oc.c O ec
cc cOc. e:ceOu ec eOue c_ ..u :_
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re.ccO occ c.:. O.O.ccu oec.e:.c c.
ec._ O.. ce.O_ cOc uc cccOc e:ceOu
ec._ oOuu o o. ec._ O.. re.cec
r.cc..uc .ecr.O o o.r ecuu5 r.O e:c
c.
_r. ec. : :c rc..uc .._c cu
oe_rc. c.:. O.O.ccu c eO_ ..c.Ou
c_ rccu _.cc O..c.c e_ cOc.O .c c.
e.c r o..c u.c.u :. oc Oc.uc _g.c
.. c_er. ....O : :.cr c. 5cc Oc.u
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crcOc Oc.uc rc .u.O :rc.
c:cO occ oeurc O.: O.O.ccu eO_ec._
Oc.uc, o_ r_.u.rc. re.cec Oc.uc :
o.ccuc .:. eu ocec.. :. .O :. rOu
_ ccD.c cu ..r .c c. r.cc..ucr ecuu5
rcc.
._.. c.:. O.: O.O.ccu : c.:. O..c.c ec.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 unied
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 scal 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 identied 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 nancing 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.rOc
rc.r. c.:. O.: O.O.ccu : .c Ocr5 cue.u ccO r uec.:uc rcu c..u O.:
O.O.ccu : r.cc..ucu c:c reo.
-_crr
_r. _-_ .._c
O.O + > _.r. _-_ o<._cc o_. rrrOc
rr. c,c.
2013*
c.cc..r
cco.rrr
2013
2011 2012
.co (o,. _cr) 137,003 170,652 142,774 198,178
_c oe_c 132,460 163,998 139,650 191,378
eOuc o.c5 4,543 6,654 3,124 6,800
cocr co (o,. _cr) 156,269 231,815 124,974 176,996
_ cc.uc 115,912 173,658 88,458 121,417
.5.c cOcu c_ .u5 84,144 120,264 60,892 76,012
_. 31,768 53,394 27,566 45,405
u.c.u, ucc :. e- :5 cOc 18,218 27,658 15,451 26,825
..cc c5 2,014 3,238 1,389 2,390
.c .c ec._ 1,828 6,334 4,426 7,182
eOuc c5 18,297 20,927 15,250 19,182
_.c(_.c) (o,. _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 : .5.c cOcu c_
.u5 (c. c_cu)
103,576 156,395 63,722 99,911
-u: ec_ ..O : .5.c cOcu c_
.u5 :. e.o5 (c. c_cu)
(83,921) (182,192) (98,072) (149,616)
-u: ec_ ..O : .5.c cOcu c_
.u5 :. .5.c c.c.OcuO e.c cc
e..c (c. c_cu)
75,503 49,705 15,355 -
c..r r.occ..r ocr
_ cc.uc :_ _ c.c 40:60 30:70 61:39 50:50
_ o.Oc.c (`) 90 93 94 96
cc o_.c (`) 11.7 11.0 11 10.6
_rc.r c.crc (..cO.o. c,c)
c.c _c (u.u) 5,748 6,932 2,288 3,909
:_ _c 4,020 2,729 4,604 4,986
r. :_ _ -_...c : 5ccr 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. _-_ .._c : c.:. O..c.c ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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2011
-19,266
-61,164
17,800
2012 2013 iema;enr
flgqm;a
rEmigyk 16 > ,xld ,sn, uKav,fha ,dNhS;ajh
-70000
-60000
-50000
-40000
-30000
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-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 unied
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 scal 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 identied 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 nancing 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 .co (o,. _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 co (o,. _cr) 451,411 605,362 386,427 515,236
r.5 cOc 426,583 568,238 363,567 484,755
._. cOc 9,001 18,360 12,343 16,458
eOuc c5 15,827 18,764 10,517 14,023
_.c(_.c) (o,. _cr) (94,508) (89,658) 3,864 5,152
e:u cOc (c. c_cu) - - (7,612) (8,676)
._cu _ _.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
ccc cr -,.r <c ccoc (o,. _cr) 147,975 211,163 203,719 190,869
._.. _r. -u: ec_ ..O : c.:. O..c.c ec.cce5ucO
erO5cc
zo+ Oc.ec c_. .. c_ c. -_cu .e r O
e:u .ueuOO o_ ._c5 r.O ecc c. -_cu
+. r e.e:c5 _.ccr O.cc. r.O -u: ec_
uc.c ..O .c c. zo+ Oc.c oO.u Ou O
oce5uc rcu _ c. -_cu zo r o_.cc c.
-_cu +. rO. o rc.O oecr.cc. e.c zoz
Oc.ec O.cc. O -_cu s r O o_.cc :. u O
rc eceuu Oc.ucr.
e_.r eO_ec.e_ e-.cec_ -c_cr c_ o.e..
o r ...u. o.cr cOc. e.u. zo+ ec-cO.
. O rcu _- c_ ..u e...uc e:ceOu
ccec_, ec_ : .Ou c.u. u.u :c. O
oeurc u.c.u :. cOc c_7- Ou c_ r.cr
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cc.u re.cec ec_ :. Ou _g. o o.
e:ceOu o_ r._ ccec c_ _r. -u: ec_
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cc: rOcc ucc r.O O occ o-.O cc:
r. :cr r. :. :_ u.O.r :c e-.cec_
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-_.rc cr.cc.Oc c:Oc r. :. ec_ .-.
r
e
'

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3,864
89,658
94,508
2012 2013 iema;enr
rEmigyk 17 > Lksc f;,a kS;s.; ixia:df ,dNodhs;ajh
-100000
-88000
-76000
-64000
-52000
-40000
-28000
-16000
-4000
8000
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rEmigyk 17 > fn%ka fndrf;,a , 2002-2013
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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.
r. :. ..O ._r ccOccu e.u oc occ
zo! Oc.ec c. rOcc o.c5c r.O oecr.cc.
zoz Oc.ec O c.O Ou c. c_cu zs O
.ecr.O :.cr :_5c.u :. :_.cO:u .._c
zo+ Oc.ec .. oO.uec c. c_cu +s r
_.ccr cccu oecr.c _.c ..O.O _.. o.O
.c c. e5 :. ._rO. e:c Oec ecc Oc.ec
.. r r._cO .ecr.O o.c. ccO + r Ou
:_ o.cru O o.c e.e:c5 c. ccO s ru
O o.cc.
c c.uc :_ cc5 o.Oc.c ccO !!.+ r
cc.ccr rO. oecr.c O _rrc e.. r._ ..O
c_ o.uu e_ _.. rc .u.O :r o oc
occ uO :_ 5-u.c. , r _-. ecu . :_
5-u.c.Ocu -..O ,ee,eeo r rO. O c.
:_5c.u :. :_.cO:u .._c zo+ ._ ..
c_ :_c u cOc c_cu +e r ucO. oc occ
e.cu c.ccO e.u oc :_ c...c u cOc
c_cu z r c.. eo.
zo+ o.c5 eu._-u :_ _rrc ccO z.z r
OO cc c .c Oec o.c Ou ccO z. ..
u O zo+ Oec _ O o.ru cu5 ccO
+o.ze rO. Oo.r cecuu5 rcc. ce OO,
er._. .: u.c c. ..O c_ o.c5 eu._-u :_
cc.cc ccO ! ..eo cOc.
o_c

:.c r :_ 5c.u : :_.cO:u .. _c
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
o .co (o,. _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 cO,c (o,. _cr) 13,983 15,940 12,928 19,500
_.cc..O (o,. _cr) 421 (258) 389 910
c:cO e.c cc .c e..c (c. -_cu) 32.8 36.3 33.7 35.6
c..r r.occ..r ocr
:_ 5-u.c.Ocu (-..O c_cu) 1.15 1.58 1.66 1.72
:_ u.c.uc (u cOc c_cu) 490 526 361 562
:_ oe_c (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.u :. :_.cO:u .._c : c.:. O..c.c ec.cce5ucO
erO5cc
O.O ++ > o.rr o_ cOc.r cc o_.cOcr o<._cc o_. rrrOc
rEmigyk 19> c, inkaO;d ixLHdj

,
sh
k
0.0
0.4
0.8
1.2
1.6
2.0
2011 2012 2013 2013
iema weia;fka;=
>
k

g
r

,
sh
k
rEmigyk 20 > wdh fkd,nk c,h iy c, wf,h
0
100
200
300
400
500
600
700
800
2011 2012
342
158
110
164
562
251
526
148
wdh fkd,nk c,h c, w,h
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 unied
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 scal 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 identied 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 nancing 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+ Oec ._ .. r r._c c_ Oc.cO cc uo
c...c o OO c. .._ uo :. ocoe5
c:r5 O c. r. u. . _r. Oc.c o.r.c
u e.e:c5 rcu _- -:.g5 (:,.) c...c
c_cu +.zz rO. O c. . _r. Oc.c o.r.c
u zo+ :u ..ec c:.ec O. -:.g5
c...cr cu5 rue.uc z,zo r e.e:c5 r_
..c e_ O.cc..c c.
...5 c:.cc .:u c.:cr. Oc.cO cc uo
-..O zoz +s r O occ cc e5 Oec cc5-c
. oOu Ou O rO. rc eceuu e_
Oc.uc oc. e.. Oc.c :. o.ec.:urcu u
o.r.c :c:. rcu _-u e.e:c5O_O ouc,cO
e.c cc oO. - c...c :. oO. c.:. c..cO
o_O uO cc- :uO. eu _-.
o.r.c Oec c_. .. r r._c c_ - e.o.O
ecc _.cc c.-_cu s.e r O.cc. r_ occ cc
c.c OcO .ecr.O ccO zo r O o.r.
o.c. c. -_cu z. r cu5 ccO r o Ou O
e.e:c5 c5 c. -_cu e. cu5 ccO z oo.
e.. _.cc _-.O cr c. . _r. Oc.c o.r.c
Oc oOu Ou O ecu`` .e_ oOc...ecu
oecr.c O.c .. _rc cc _.ccr _-u
occ oecr.. erec.
zoz OcO .ecr.O e.. Oec cc5-c oOu
Ou O e. .c .u5 c. -_cu ! O c.
-_cu !o.e rO. ccO r o oc occ e.c
.c .u5 c. -_cu e.! rO. ccO s ru O
o.r ecuu5 rcc.
c occ. cu .cDu. _cOt :. . _r. Oc.c
o.r.c c.:. :. ec._r o.ec cr.-.
O..c.ccr e_ rcu _- er._. rue.uc
Occu_ _cOt o.ccuc zo+ oe..c . u_
O.ecu O.c rcu _.
T
E
U
s

,
sh
k
rEmigyk 21 > Y%S ,xld jrdh wldh iska fufyhjkq ,enQ
lkafkr ^TEU& ^,shk&
0
1
2
3
4
5
2011 2012 2013
iema
2013
weia;fka;=
:_ 5c.u :. :_.cO:u .._ec eu.e.O .c
c...c c. -_cu ++. rO. cu5 .._ec .
:cr.ccOecu ccO s.z rO o.uu o.cr rO.
c. o.cru o o oc.
rr. c.cc..r
cco.rrr
2011 2012* c,c 2013* 2013
o .co (o,. _cr)
37,125 25,949 45,490
u.r ..c
4,860 3,675 5,126
uo 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
o co (o,. _cr)
31,914 17,322 19,789
e.e:c5 c5
31,159 16,933 18,700
._.rc. c5
755 389 1,089
_._. (- c.oO cco) (o,. _cr)
5,211 8,627 7,215
-r :. .c (c. c_cu)
5,435 6,389 6,731
e. .c (c. c_cu)
141,365 140,564 188,439
e. .c .c ec._c (c. c_cu)
2,255 4,459 5,751
r.occ..rc
O.O +! > c _.r. Oo.c .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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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
.co (o,. _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
co (o,. _cr) 110,839 147,159 70,195 141,193
e.e:c5 c5 68,418 89,899 44,084 93,063
._.rc. c5 1,431 3,228 1,787 2,592
eOuc 40,990 54,032 24,324 55,850
cocccO _._. (o,. _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 ocr
..u r_ ..u -..O (c_cu) 3,459 3,964 2,145 4,297
.Ou c.u. oc (-..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 ocOc
.c o.ce.u ccO r o o.r zoz+ Oc.ec
._ .. e o.c.O .ecr.O ccO r o o.r
ecuu5 rcc. cO, ecc Oc.cO .ecr.O ..
cOO5 ..rc ccO z r Oc.ucr ecuu5 r_
zoz+ Oc.ec c. c_cu z,+ r O o_.ccO
.ecr.O zo+! ._ .. e c_ c. -_cu .s r
o_.ccr O.cc. c.
c:ec ccccc.c cc.crO ouO zoz Oc.ec O
Oc. r r._cr c_ _-. .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)
_-. .O rOcc rcu _.
._ru .Ou .... u ..e_.cc r._
ccec c_ o.e.. c_cu zz r O.u. c.....c
-5rc cOc. . c_u -u: ec_ uc.c ..OO
e.c cc c. -_cu z!.z r u.u -_cc e.o.O
rOcc rcu _. . _ru .Ou ....O .. e
c_ .Ou c.u. u.u, r_- O.r, .Ou ec.Oec._
e.e:c5 : .c e.o5 Ou e.c e.o5
eOueOu c. -_cu !+ r c.. e.o.O Ou oc.
cocccOr _,- TEU co.<c (_cr)
2.32 3.22 4.3
r,o c,O 4,931 3,025 3,691
er._. Oc.c 4,495 2,751 3,691
c:. ...5cc .:u 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
uq u.S ixp,kh Y%S ,kalka u.S ixp,kh

,
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 ec.cce5ucO
erO5cc
._.. . _ru .Ou .... : c.:. O..c.c ec.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 unied
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 scal 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 identied 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 nancing 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
.co (o,. _cr) 9,807 11,819 9,614 13,315
..uu.r 2,142 2,708 2,085 2,942
..uu.r eu.Ou 6,818 7,980 6,815 9,689
eOuc 847 1,131 714 684
co (o,. _cr) 7,667 7,960 5,605 8,274
cocccO _._. (o,. _cr) 2,140 3,859 4,009 5,041
.c .u5 29,016 38,839 38,835 47,830
o_r r.occ..r ocr
..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 eO. (. _r.) .... : c.:. O..c.c ec.cce5ucO
erO5cc
.Ou ec.Oec._ : .Ou eO. (. _r.) ....
zo+ ._ .. r r._ ccec c_ c. -_cu .e
r o.c.r O.cc. rc oc occ cc ecc Oc.ec
._ .. o.c. O c. -_cu s. r o.c.O
.ecr.O ccO s.! r Oc.ucr ecuu5 rcc.
zoz c.. .. uOec c. -_cu +. 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
oc. e.. .... zo, zoz : zo+ ._ .. r
r._ ccec c_ c_O_u ccO zz,++ :. !z r
_.c o.ucrcr cOcO.e.u cu occ zoz Oc.ec
c. c_cu sz r _.c..cr cr..cO
cc rcu _.
.Ou ec.Oec._ : .Ou eO. (. _r.) ...e5
zo+ cc5-c +o Ou O . e. .c .u5
c. -_cu +s.! eo. .:. c.....cec .:c o.
.c _-.e.u oc e. .c .u5 r eOueOu
.... u .c eO.rc.c :. zo+ ._ ..
c_ c. c_cu se r e.O. oc. cO, .cc_
:.c.ucc .Ou ec.Oec._ r. :. _-. .c
o.e.. c_cu s r .c ._ e.o. r. o.c5c
r.O uccc occ c. .Ou ec.Oec._ Oc.u
r. :. 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
wdhu hou fufyhq ,dNh$ ^w,dNh&
o

_
c
:
2011 2012 mqfrdal;kh 2013
zo r .c ._r c: eOu occ e_ _-. .u.O
ucccc.
Oc. c_ -..cu.cr :.c.ucc .Ou
ec.Oec._ e.e:c5 ..c.Oc e.. re5
oO..c.Oc :u.e.u oc occ c :. oO..
r5 rOcc zo! Oc.c c_ o.c5c r.O
_5 rc oc.
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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
.co (o,. _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
co (o,. _cr) 24,126 30,137 25,010 32,170
e.e:c5 cOc 10,322 13,797 11,065 14,350
eOuc cOc 13,804 16,340 13,945 17,767
oocc crrOc (o,. _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 _.c (o,. _cr) (3,490) (4,653) (4,178) (4,588)
-rO_O e..O oc :. (c. c_cu) 396 627 660 690
O.O..cc -5 :. e.o.O oc :. (c. c_cu) 1,570 2,971 3,911 2,824
o_r r.occ..r ocr
e.e:cOu _ .. r.c. -..O 933,810 923,034 931,527 935,000
e.e:cOu _ - 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 ec.cce5ucO
erO5cc
c _.r. .or..or o<._c
zoz cc5-c oO.uc :. u O zo+ Oec:
ouc,c r._ ccec c_ . _r. ..u...u
.._ec . o.ce5 ccO .! r Oc.ucr :
. ce.: ccO .e r :_ c..r O.cc. c.
e5 e:ceOu .._ec o_.cc c. -_cu !.z rO.
ccO zo ru O o oc.
r_ - cu. .c ec er :c - c. o+ r,
e-.cec.. - c. + r :. ccO o.ccO .:.
c.....cecu _-. eu _ c. -_cucr ccc.u
cec.. rc .ucu r. - c. zs r 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. oc - c. !+z ru
o o oc. e.. - c. oc cO cOc .rc.c
re5 oc.u cOc c. -_cu r zo!-zos r._
ccec c_ .:. c.....cc u _-. .O
_5 rc oc.
zoo Oec O . _r. ..u...u .._c u
eOr oc...r oc._O e.o.O oc crc O :.
rEmigyk 23 > Y%S ,xld .ukd.uk uKav,fha uQ,H ;;a;ajh
-10000
-5000
0
5000
10000
15000
20000
25000
wdhu NdKavd.r iykdOdr
ys jHjia:dms;
f.
mqkrdjr;k iykdOdr
j,g miq w,dNh
r
e
'

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sh
k
2011 2012 mqfrdal;kh 2013
cr ._ c...c zo+ cc5-c oO.uc Ou O
c.c_cu +, r. e.. cccOc .._ec eOrcu
occ o:ur. cccOcr oc r.O e.u. :Ou
uc.c rc...c. rc. ec.. r.O e:c o oc.
e.. :. . O.O..cc e.o5 ccO. c.O c.
r.uu ccOc .c cc -O .:. c.....cc u .
_r. ..u...u .._cO :. cO.:u o..c...cO
uO. oc.
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 unied
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 scal 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 identied 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 nancing 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 ._ .. c_ c.:. -r cucc cu.
c. ._cu z r ...ucO _.. o oc. :.c.ucc
cu c_ ..u o o. e:ceOu zoz oO.uec
c. -_cu ! r O cOc orc .c c...c zo+
cc5-c oO.uc Ou O c. -_cu z rO. ccO
o ru O o oc.
_.r. -,.rO
zo+ Oc.ec cc5-c oO.uc Ou O c. -_cu
, r Ocr5 cu.r ..u _r. -rO . _.rc
-r re.cec occ ..uc cO cOc cO.e.u
oc. zoz cOc ccO .! :. e5 _r.
-reo oO. c...u oO..c. ouc.cc zo+ :u Ou
O ccO o.ss rO cOc.
r._u cucc c. -_cu sz ru, cu5 ccO z
ru e.. r._ ccec c_ Oo., . cucc
O.u.r. c.-_cu so.+ rO. ccO z. ru
Oc.uc o.O c..u O.ecu cr o oc. zoz
cOc ccO +.+ O .ecr.O .. ec._ o.ucrc
zo+ cc5-c oO.uc Ou O ccO z.e
rO. o o. zo+ Oc.ec _rr.c .. ec._
o.ce.u ccO e r c..r cc.O e:c o
oc. :.c.ucc cu c_ ..u o o. e:ceOu
zoz oO.uec cOc ccO z.s O .ecr.O orc
.c ouc.cc zo+ cc5-c oO.uc Ou O
ccO !.! rO. O o oc.
e.. Oec: .. + c_ o cOc cucc
o.rc.uc rc .u. : .c cucc ouc.cc
o rc .u. :. cccucr .ce:.c, zo+
Oc.c :. -reo _.cc c. -_cu s r Ou
occ oecr.. erec.
:c rc. e:ceOu, _r. -rO .c c:r5
_e5 cccOec occr.c5 _-. ., orc
.c o.r..c, .c c:r5 orc .c -OO
cco. O_ro. :. uO.c. rc...c. .u.
: Ocr5 : ..cOc Oc.uc :. cOcu. .c
c:r5 cce_-u.c r. : ccO.:.c r.
o. c.c ..c. rc.c.r r. erec: oO..uc
ec.. rccu .. ec._ ouc.crcu : o o., .c
.. Oc r. : eO_ce_: O._c.Oc o.
rc. zo+ Oc.ec c r._ ccec c_ _r.
-reO: rc.r.cr5 erec: c:cc -_c,.r
rcu oc.
rr. c.cc..r
cco.rrr
2011 2012*
c,c. 2013*
2013
o .co (o,. _cr) 70,857 110,138 90,083 126,007
ec._ o.c. 61,622 95,022 81,243 113,324
ec._ c. 36,216 59,701 58,543 76,057
c. cc. .co (o,. _cr) 25,006 35,321 22,700 37,267
eOuc o.c5 9,235 15,116 8,840 12,683
o cocccO co (o,. _cr) 16,955 20,870 20,066 31,815
c._ cOc 10,460 12,927 10,059 14,915
oeurc c5 6,495 7,943 10,007 16,900
- cco _.c (o,. _cr) 16,485 19,794 11,474 18,135
o_r r.occ..r ocr
o.ec.:u (c. c_cu) 152,749 276,655 377,823 331,986
cucc (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 ec.cce5ucO
erO5cc
rEmigyk 25 > rdcH nexl= ;ekam;= 2007-2013
0
500
1000
1500
2000
2500
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sh
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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
o .co (o,. _cr) 67,901 94,633 85,094 113,867
ec._ o.c. 61,788 85,241 78,912 105,358
ec._ c. 31,470 51,323 56,621 72,758
c. cc. .co (o,. _cr) 30,318 33,918 22,291 32,600
eOuc o.c5 6,113 9,392 6,182 8,509
o cocccO co (o,. _cr) 20,831 28,061 21,902 29,859
c._ cOc 10,547 13,819 8,962 13,106
oeurc c5 10,284 14,242 12,940 17,753
- cco _.c (o,. _cr) 15,600 15,249 6,571 10,250
o_r r.occ..r ocr
o.ec.:u (c. c_cu) 129,977 175,491 214,509 223,589
cucc (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 + > ocor -,.rco o_. rrrOc
._.. .::u -rO : c.:. O..c.c ec.cce5ucO
erO5cc
o.rr r rcO -,.rO
:.cr c re5 -rO zo+ Oec ._ .. c_
- e.o.O ecc c. -_cu .s r _.ccr O.cc.er.O
oc. zoz Oec .. ec._ o.ucrc ccO z. r O
occ cc zo+ ccO . rO. o c. zoz Oec
. r._u cucc :. :_ ec._ ouc.c _-.
c- occ cuccO_u ccO s r cc.ccr e..
.r._u cucc o. : o.ec.:ucu . r._u
o. ccO c..u e:c c. c-u zo+ oecr.c
_.c _rrcu cc. .u. :. -rO cucc d
re5 cOc erec: c. r_cu.r. c ccc.
zoz -rO c cucc c...c c. -_cu !.
r O occ cc zo+ cc5-c Ou O c. -_cu
!. rO. O o oc. -reo orc .c r_.
zoz Oec c. -_cu +. r O occ :.c.ucc
eO_ce_: cu c_ o o. e:ceOu zo+ cc5-c
zo+ Oc.c o.c5cec cOc :_ eO_c_ ec._
ouc.crcu : o cOc cucc cue5 o
Oc.u ouc.cc e:ceOu ec._ o.ucrc o o
oc -u Oc.ec cec.r.uc r_ .. ec._
o.ce.u -rOO _.. rc .c :r Oec ccO es
r c...cr c.. ce OO, ec._ ouc.crcue.
o o. : .c .. Oc r., zo+ Oc.ec c
r._ cceec -reo r.cc..uc erec: c:cc
-_c,.r rcu oc.
:.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 r. : c. -_cu +.+ r
ccc.ucr oc r. -reo _.cccOc erec:
o:crc e_ -_c. oc. zoz c. -_cu .! rO
cOc orc .c r_. zo+ cc5-c oO.uc Ou
O c. -_cu +o. rO. O o.c .. -reo
Ocr5 : ..cOc c:c O. oc.
r .c ._: c...u er.O ..u O.rcue.
u e.O. c.O ..eurcOu uu rco. :.
-rO u e.. ...r._u .c c:r5 r.cr
:uO. oc. . OO:u c_u -reo . .c
5 O_u ccO z rO O c...cr :. ...
c... O.O.c o.c eOc ... r._ec _-. .
:. e.. c.c ..c.cr r. oc.
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 unied
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 scal 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 identied 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 nancing 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
o .co (o,. _cr) 47,863 53,045 47,176 64,318
ec._ o.c. 47,096 52,673 46,343 63,208
ec._ c. 29,296 39,142 39,708 51,356
c. cc. .co (o,. _cr) 17,800 13,531 6,635 11,852
eOuc o.c5 767 372 833 1,110
o cocccO co (o,. _cr) 9,312 7,734 5,681 7,567
c._ cOc 4,140 4,077 3,138 4,175
oeurc c5 5,172 3,657 2,544 3,392
- cco _.c (o,. _cr) 9,255 6,169 1,787 5,396
o_r r.occ..r ocr
o.ec.:u (c. c_cu) 327,797 312,723 369,850 373,558
cucc (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 r rcO -,.rco o_. rrrOc
._.. :.cr c re5 -rO : c.:. O..c.c ec.cce5ucO
erO5cc
Ou O cc ccO zoz r cc.ccru cu5
c. -_cu o. rO. O o oc. cO, :.cr c
re5 -rO cO z r ..-. :._cr !,o+ r O
cc_ r.cc._c cc_ r.cc._ ..-. :._cr
oc occ. o-.O oOc o cc. -r .c Oc.
rc.ec AAA Oc.rc.c cOcO.e.u oc. cO,
-rO cO c_cu .! r Ou -r ..eurcOu
-..Or Ocu cc. .c.
ccO. rcrrrcrc. .or.o oo_
eO. ucrcrcue. c.cr.c oc._ zo+ cc5-c
Ou O c_cu o.+ r . ...r ..5 -..Or
rc.r.O cOcO.e.u cu _-u occ c. r._c
c_ ...rcu z,o eeur :. c. -_cu
!.r :cr5 ._ c...cr o.c e.O. oc. zoz
Oec cc5-c rO. O.cc. O c. c_cu o,o!e
r o.c. :. uuc re5 e.. r._
ccec :. o.c. c. c_cu o,! r rO.
Oc.uc oc. zoz Oec c. -_cu !.e r O
.c o.ec.:u c...c zo+ Oec c. -_cu
s.e rO. ccO e ru Oc.uc oc.
...rcuO :. eO.ec.:rcuO cr ._
.c -r r.c :c:. oc._O e.oe5 c:r.
c_ rccu zo+ Oec ._ r.cc cu c_
_r. -rO :. er..c._ -rOO o.ccO .::u
-rO, :Ou u.u_ -rO : 5cc -rOO
c:r5 O..cc rcu _. ...rcuO cr
._ cr ur c_ _-. .ue5 c:r. oc
rccu oc._ u cr ._ rucu e.e5
r.cr zo+ ..cc O o.c5c re_c. cO,
..rcuO :c c cr.. :cr. zo+ :u
O rc.c.r Ou c c. o,ooo O c. oo,ooo
rO. O rcu _.
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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
o .co (o,. _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
.. o.c. 13,230 13,322 10,906 16,160
o cO (o,. _cr) 993 1,174 834 1,330
e.e:c5 c5 699 766 542 867
...r c5 294 408 292 463
c. .co (o,. _cr) 12,237 12,148 10,072 14,830
c- c,c c,r _.c (o,. _cr) 12,571 14,130 10,422 15,017
o_r r.occ..r ocr
...r oc._ ec._ e.o5 3,695 4,190 - 4,633
_.c.. 8,622 9,777 - 10,038
. ec._ :. _.c.. ouc.cc % 10 10 - 9.5
rr. c.cc..r
2011 2012* c,c 2013* cco.rrr zcI+
. o.c. (c. c_cu) 17,208 25,644 24,479 32,957
. c. (c. c_cu) 11,773 19,781 17,711 23,349
.. o.c. (c. c_cu) 4,215 4,235 4,182 6,149
O.O ! > ccO. rcrrrcrc. .or.o ooc_ 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;fka;=j
* flgqm;a
uQ,dY% ( Y%S ,xld rlaIK ixia:dj iy rdcH jHdmdr fomdr;fka;=j
* flgqm;a
oro<c
. _r. cr.. ..O
. _r. cr.. ..O zo+ Oec cec.r.uc r_
_ O.r o.c. O c.c_cu z+,s .. uuc
re5 .c O .. r r._c c_ c.c_cu ,!+
r O _ O.r o.c.r cu5 ccO e r c...cr
cc.e.u oc. cu5 Oc.ec cec.r.uc r_ ..
O.r cc5O_ c. c_cu ,s r c...ecu
c. c_cu +,oe r cc.e.u oc. _ O.r o.c.
:. ccO +e. r c cr.. o.ecu ccO
e+. r ...u. cr.. o.ecu cr oc.
Ocr5 c...c _r O .._c. cr.. o.ccuc
Ou . _r. cr.. ..O cr.. O.r o.c.
_r O eOu ..uec cOc.
. _r. cr.. ..O zo+ Oec ._ .. r r._
ccec c_ c.c_cu , r o.ec.:u o.c.r
O.cc. rc oc occ cc .c o.ccu ccO + r
c...cr Ou occ zoz Oc :. uuc re5
cc cOcr
c_er.
zo+! Oc.ec ._. cec.r.uc Ou c. c_cu s,eo
.. u O c_er. o.ccuc zo+.o.+o euu
oOu Ou ._. Oc.ec ._ .. e :. c. c_cu
+,e! r o.c.r cc. oc occ uO cOcu.
e.e:c5 ..O. ouO ...e5 -_.ec.ec.cc _rr
rc. _.. c :r eo c ou.ccc. o.ccuec
cc._u : re5 : e- :e5 c5O_ O
o. e:ceOu zo+.o.+o u oOu .. e r r._c c_
ccO zs r Oc.ucr ecuu5 rcc. ..O
eeurO _ 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 unied
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 scal 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 identied 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 nancing 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.O c5 ouc.cc ccO oz rO. O
o oc. zo+.o+.+ u Ou O cOc eu.ccO -r
.c e..c zo!.o+.+ u Ou O c. c_cu sz O
c. c_cu !so rO. o eo cc oecr.. r_c r
re5 cuc c_ .u.O ogcu _-. .c .c
e:ceOu c. e..c zo+.o.+o u Ou O c. c_cu
e! rO. O o oc.
r crc re5 .....u s u r. e..ou
u c._uc rcu _-u ccO_O c.c oc occ
cO.ec eOc r_ r.cc .._c rc..uc.._.O_
: re.cec rOccO_ ec.O. oc occ c e:ceOu
r crc r. :. .rO c. c_cu +.s r o.cc
c.r .O o oc. rc..uc.._. O c.
r. :. _-. .c cec. c_cu ++. r eu..cr
.c c.c.er.O rc..uc.._. :. cuc c_
e.u oc occ cO.cu ccO +o r c.. uO.c
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:e._c.eOu o.ucuc r.O rOcc r.
O.O > !+ cc cOcr .ccc o_. rrrOc
rr. c.cc..r
cco.rrr
2011/12 2012/13 c,c 2013* 2013/14
.co (o,. _cr) 5,428 6,489 3,645 8,609
r u.c.u oe_c 5,263 6,385 3,630 8,577
eOuc o.c5 167 104 15 32
cO (o,. _cr) 5,673 7,356 3,715 8,549
- cco _.c (o,. _cr) (245) (267) (70) 60
cr.ccO -,.r <c (o,. _cr) 642 582 645 480
o_r r.occ..r ocr
r crcO (_Oc c_cu) 68.5 69.2 36.7 75.0
.co (o,. _cr) 1,232 1,219 1,135 1,409
co (o,. _cr) 982 1,191 1,097 1,359
- cco _.c (o,. _cr) 250 28 38 50
cr.cc O -,.r <c (o,. _cr) 128 1,005 1,057 1,055
o_r r.occ..r ocr
c_r (_Oc `ooo) 2,868 3,442 5,620 4,130
c r (_Oc `ooo) 635 684 545 739
r u.c.u (_Oc `ooo) - 407 309 384
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: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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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2011 2012 c,c 2013* 2013
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r.5-c..:.u.. 4,806 4,277 3,149 4,533
cO (o,. _cr) 16,899 19,747 12,276 20,915
_.c_.c (o,. _cr) 418 468 471 512
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: oe_c - - 395 427
cO (o,. _cr) 1,187 1,298 1,137 1,328
- cco _.c (o,. _cr) 245 116 288 170
-r :. 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;fka;=j
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c.:. :.. u.c.u ..O c: r.5 Oc.uc
rc .ucu zo+ Oc.ec cc5-c . Ou O
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ccO s! r cc.e.u oc. ..eo . o.c.
ccO + r e-. eO. ec.cce5uceOu cc
Ou ccO z r o.c. : oe_c ..u : c.:.
:.. ..OO oe_ r. c_u _-.e.u ce.
-r :. eu.cc O .c ccO z ru O o oc
occ r.5 c...c O o. : o.O. cOc :_
c.. e:ceOu zoz Oec c. c_cu !s r O -r
:. eu.cc O .c zo+ Oc.ec c. c_cu rO.
O o oc.
Oc z rO O. cc cuc cO_ ucc cOc
:_ c.., e.e:c5 c_cc.O oo. : .-.
c:r5 cc o. e:ceOu c.:. :.. u.c.u
..OO .c :.. _g. cc._c eu.:r o
oc. c.:. :.. u.c.u ..O eeO. Occrcu
:. c.ec..r :uc.O :. rcu _ ...c.r
:.. c.cc c_-O uOc re5 OO:u c_u
u.c.u oe_c O rc .u.O rOcc rc ce.
..OO ...r._u O..c.c _. cOec c:
c.c_ c:r5 Oc.uc r. c_u :uO. O
cc5-c rO. e.e:c5 rOcc Oc.uc r.O :r
o oc.
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 unied
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 scal 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 identied 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 nancing 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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c_c c. c- c,O
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o cO,c (o,. _cr) 16,554 20,614 17,676 23,570
- cco _.c(_.c) (o,. _cr) 79 47 628 798
O.O ! > _.r. ccr.c .crrcc o_. rrrOc
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* flgqm;a
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c,c 2013*
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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oc occ e.c . ec.e:.c :u...c c...ecu
ccO e r. e.: ccc_cr e_ e..eO.u z,ze!
r ocrc ec.e:.c cc.r eOueOu c. c_cu
e r ocecr c.r .O c:cO c. ere
OO, -, cccOc c_ oc5 ce.cu : cOc
ec.e:.c :.c e.. ec.e:.c e- :e5 rc.O_c
r.Oc re5 oc O.cr. ecuu5 rcc. zoz+
._. Oc.ec ouc,c r._ccec :. e5 zo+
O.O ! > ooc cr O.Oc.ccr c O.oor O.or. cr ro
cc5-c . oO.uec _r. ec.e:.c ...e5
. o.c. c. c_cu ,o! r rO. ccO s ru
o o oc occ c e:ceOu ...e5 _.cc ccO z
ru c:c O. oc.
er._. er..c._ ec.e:.c ....
er._. er..c._ ec.e:.c .... ce. . ec.e:.c
oO..c.Oecu ccO + r ccu occ . ec.e:.c
o.ucuecu ccO z! r o.ucuc rcc. zo+ c_
ruuec .... u e- :u _ ec.e:.c
c...c e..eO.u. +e,oo r O occ cc . ec.e:.c
c...ecu ccO + r. e...u _5.c cc
c...c O..r. :. oO..O c- ec.e:.c
c...cO O. e..eO.u e,+ r ocrc cc.r
eOueOu c:cO .O O ocrc c. c.
c_cu + r. ec.e:.c e- :e5 rc.O_ec oc
o c. .. :cO. .u. :. ec.e:.c e-:e5
rc.O_c cOcOc r.Oc c cc -O cu c:_ eo.
. cOc ccO ru O o. e:ceOu zoz+
eOu r.ccO :. e5 zo+! eOu r.cceo
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O.O.c 2009 2010 2011 2012
1 _r. -rO
2 .::u -rO
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4 c.:. r :. o.ec.:u -rO X
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7 c.e.c Oc.u -rO
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9 eO. ucrccue. c.cr.c oc._ .._c X
10 . _r. cr.. ..O
11 :.cr cr.. c.c oc._ X X
12 _r. _ -_ .._c X X
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14 . _r. Oc.c o.r.c X
15 :.cr :_ 5cc :. :_.cO:uc .._c X X
16 ..:c .Ou ec.Oec._ :. .Ou eO. (. _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 .... ce.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 unied
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 scal 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 identied 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 nancing 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. c._r ....
24 :.cr c. 5cc Oc.u .._c X
25 _r. .Oc ..O X
26 _r. .Oc Oc.c u.c.u uc.c ..O X X
27 c.:. :.. u.c.u ..O X
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31 O..u c,cO.:u :._c
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33 . _r. .Ou _ ..O X
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35 er._. er..c._ ec.e:.c ....
36 c.:. O ..O X
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38 e:.eO_ Oe_.cc _r. ....
39 ..:c _r. u .... - - - -
40 ..:c _r. ec. X X X X
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45 c.:. .. uc.c ..O X
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49 ..:c rc.,._ O_ ....
50 :uc. Oc Oc.u .._c X X X X
51 ..:c :_.Oc O_ ....
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53 . _r. r: ..O X
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55 ..:c r:O.: rcc. _r. ....
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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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 _ c.o_...c .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 re5 -rO
- 810 1,060 1,060 1,750 2,312 4,560 8,260 3,060
c.:. r : o.ec.:u -rO
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c.e.c Oc.u -rO
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c.:. O ..O
- 75 150 75 50 10 75 50 40
c.:. :.. u.c.u uc.c
..O
- 25 30 40 30 85 59 20 20
:.cr cr.. c.c oc._
- 2,250 2,000 3,495 4,200 2,250
. _r. Oc.c o.r.c
- 115 65 - - - - - -
_r. _-_ .._c
- - - - - - 2,000 - -
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- 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
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uq,dY%( NdKavd.dr fufyhq fomdr;fka;=j iy rdcH jHdmdr fomdr;fka;=j
* iajdk 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 fmdiafma iud.u" ,xld f,a,ka iud.u" isf,daka wef.%da bkavia%ia iud.u" fld<U jdc fmdfydr
iud.u" mrka;ka fll,a iud.u" rlakd wrlaIl ,xld iud.u" ,xldmq;% ixjrOk nexl=j" cd;sl ixjrOk nexl=j
y,dj;" lfndahdk" we,alvqj" l=reKE.," kuqKql=," lE.,a," w.,j;a;" n,kaf.dv" jgj," fydrK" we,amsh iy
mqiaie,a,Ej wd je,s iud.
o,._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 unied
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 scal 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 identied 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 nancing 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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.oOr Oo.rc
zo+ Oc.ec c_. .. uOc :_ . r.eo .c:
o.c.r Oc.u eo.c ccO e. r O o:c zoz
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ru Oc.uc c. e.c :. e..c o.c.rec o:
O oc-r. :::Ocu e::eOu .:. .O O
ocec..cu :.eo OO, o.c.r Oc.uec o: O
c.:c ::Oc rccu eO. : 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, zoz
Oc.ec .c..c :_ o: O o Oc.uc .r:.:O
.. :cO. .ucu, zoz Oc.ec eOu r.c:O :
:uOu r.c:O :_ ccO e.! r : ccO !.s r
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eOu r.c:O : :uOu r.c:O :_ o.c.r
Oc.u eo.c ccO e.s r :. ccO .s r c. cO
:_ ..Oc:Oc c_- .O.c e..u.., o-.O
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ouc.: o re.u o: O c:c: -c,e.u cO
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c..u O.ecu. c-c, ec. : -5 O.. c
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c_O : c_:c c o.cue. Oc.uc o o.
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3.0
4.0
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2012
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2012
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2012
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2013
ld1
2013
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j
r
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r.r.ccr ec.. O O.ecu O.. rcu
-u ce.O cO: uc.c : oc:c:
Oc..c:uecu o: O oc:c: -c,. e::eOu,
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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2010 2011 2012 2012 2013* 2012 2013*
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1.2 c-c 6,983 7,128 6,647 4,455 3,293 (0.0) (26.1)
1.3 ec. 28,855 29,720 31,504 24,091 19,250 8.4 (20.1)
1.4 ocucu ec.. 14,955 12,114 11,507 8,417 8,995 (10.7) 6.9
1.5 o 48,377 44,325 44,887 40,298 45,659 3.8 13.3
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1.9 O : Ou 5c: 15,832 16,481 17,377 12,724 13,364 5.2 5.0
1.10 oeur: r. ec.. 10,146 10,853 11,589 9,042 9,529 6.3 5.4
2. .Oo roo.rrc 32,407 37,431 40,895 30,451 32,182 11.3 5.7
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3.1 .r r5 12,111 14,212 15,660 12,476 13,141 8.9 5.3
3.2 oeur: r5 47,968 56,980 69,012 44,474 52,028 22.2 17.0
4. roc.r 458,660 494,990 552,112 385,437 407,591 5.4 5.7
4.1 r5 (e:, c-c : ec.) 15,868 16,006 17,043 13,226 12,816 6.9 (3.1)
4.2 rc..u:... u.c.u 414,925 449,177 503,895 349,023 370,600 5.3 6.2
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5. _c, .,c cc o_c 63,682 69,547 72,634 53,157 59,955 3.0 12.8
5.1 c 56,291 61,722 64,352 47,046 53,700 2.6 14.1
5.2 ., 4,593 4,855 5,100 3,801 3,863 5.6 1.6
5.3 :c 2,798 2,970 3,181 2,311 2,392 7.3 3.5
6. rO 177,912 203,204 247,091 177,298 204,194 17.4 15.2
ccO. 1,569,598 1,704,605 1,783,317 1,325,245 1,408,918 4.9 6.3
7. cr.. cc c__o cOo 613,258 676,565 701,408 524,366 550,170 4.2 4.9
7.1 o.ucu eO_. 213,477 243,963 246,446 177,797 183,733 2.2 3.3
7.2 ocucu eO_. 106,279 117,064 117,960 90,069 92,285 1.0 2.5
7.3 e.c eO_. 293,602 315,538 337,002 256,500 274,151 6.7 6.9
8. cc.O_ cc .crc._. 13,845 17,501 21,029 11,011 12,992 23.4 18.0
9. cO.cr cc crrcor 368,643 410,402 435,872 324,013 357,407 6.7 10.3
9.1 cO.:u 302,983 337,088 357,221 265,285 293,159 6.3 10.5
cO.:u-5c 2,899 2,980 3,126 2,453 2,517 5.8 2.6
cO.:u-.. : c.. 300,084 334,108 354,095 262,832 290,642 6.3 10.6
.z c.. e.e:co.-Oc.c :
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10. -,.r, oro< cc cc_ cOo cr.c 234,255 252,706 269,744 200,511 213,332 6.9 6.4
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* ;djld,sl
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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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 unied
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 scal 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 identied 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 nancing 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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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 unied
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 scal 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 identied 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 nancing 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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er.Duc, zo+ Oc.ec eOu :. e:Ou r.c:O
c. o. O.c:. r_ rc eceuu Oc.uec c:c:
-c,. o r.O e:: o o:. eO_ :.c c
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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e:Ou r.c: :_ o.ucu eO_ eO. c_eOu
ccO . ru :. ccO . ru ocucu eOe_
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c:c:: rc...c.O cr.u -c,. e::eOu
o.ucu eO_. ccO e. ru er.Duc oe.u
: ocucu eO_cO o: O o..Occ.Ocu
:. oc:c: r..r :::Oecu o: O -c,e.u
c..u r.r.ccr ec.. u.c.u o o. e::eOu
ocucu eO_ eO. ccO . ru er.Duc
oe.u o: O oc:c: -c,. .. :cO. .u.O
:r c. e.. :::Ocu cOe:, zo+ Oc.ec c_.
.. uOc :_ 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:. e..ecu. ecc_ 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::, r5 rOc: :. erecu
o.ec.:u O o. e::eOu e.. r. ccec :_
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 unied
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 scal 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 identied 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 nancing 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. .ccc cr.o..r ocrcr
ocrc
2009 2010 2011 2012 2012
orc,c
2013
orc,c.
()
Oo.c ccO.
cc uo -..O 4,456 4,067 4,358 4,178 3,127 2,965
e.e:cOu . c..
(e..eO.. `ooo)
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e.e:cOu . -:.5 (TEU '000) 3,464 4,137 4,263 4,187 3,152 3,223
c:uo.: r5 (TEU '000) 2,633 3,205 3,216 3,167 2,294 2,401
_ c.cc .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:. :. .: :c ..:rcu
(`ooo)
240 280 359 423 1,238 1,694
cc+-. .cc
ec.r ec.: 220 172 186 197 186(o.) 202(o.)
c:ec ec.: 555 568 592 593 593(o.) 603(o.)
ou -..O (c:ec) 68,905 69,501 69,731 73,437 73,437(o.) 74,636(o.)
eeO.Ocu -..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_. .cc
-r ..-. : oeur: eO.
.....u
5,703 5,927 6,184 6,375 6,274(o) 6,452(o)
.c r.tc: (rc.r.) 840,509 778,544 862,352 952,256 874,109(o) 910,705(o)
c.cc .. ...5 35 36 39 47 44(o) 47(o)
c.cc r- ...5 21 21 16 13 13(o) 11(o)
c.o.or .cc
cc D.cr -..O 447,890 654,476 855,975 1,005,605 693,772 801,210
D.cr cc5 (o.e.. ccu) 350 576 830 1039 711 883
e:.O r..c uO:5 ouc.:c 48.4 70.2 77.1 71.2 69.1 .eu..
cO.cr ccO. (grr _c.c.o rO)
- 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. c. 37,364 85,648 138,426 98,815 74,853 64,459
OrOc 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 = w 20 iudk ny 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
uQ,dY%h( Y%S ,xld ixpdrl m%jrOk wldh
O.O > c.o.or .ccc r.occ..rc
c.o.orcrc. c,o c.o.or c,cO (,.c... _cr)
o.cc 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
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oec 26,054 38,300 63,835 69,591 79,829 20.4 33.7 61.9 71.7 89.6
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: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
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ccec :_ O.c:. r_ ccO s. r Oc.ucO
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:c.r. c ..u :. eO.Ou O..c: r. :.
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ccO +z. ru o o: u.: :.. cr.u
5-u.:. ccu zo.z rO. ccO +.o ru O o
o:. ce.u., e.. r.ccec :_ ou:c:.c
:. .: :c, c.:. rcuuue. -..O ccu
. rO. 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 unied
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 scal 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 identied 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 nancing 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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c..c c_eOu zoO ..u -:g crr ccu +.z
rO. ccO z.+ ru : e..eO.u ccu !.e rO.
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ccO s.s rO cr O -r, cr.. :. ec_
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cceec O ccO e. r Oc.ucO .ecr.O zo+
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z O.O .c.r. Oo.rcc ..cr O..crc (%)
.cc
c_o o.c
2009 2010 2011 2012 2012 2013*
r.or.or 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
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
o.:.c ec.. 7.0 4.4 2.4 10.0 10.3 2.6
.Oc rc..u:c 6.9 12.2 15.5 9.3 11.3 5.7
roo.rr 4.2 8.4 10.3 10.3 9.2 9.5
r.r.ccr r5 0.7 5.8 0.9 6.5 6.9 -3.1
rc..u:... u.c.u 3.4 7.5 8.3 5.2 5.3 6.2
r. rc..u: 3.3 5.5 7.0 4.6 4.7 4.3
c 3.7 8.2 9.6 4.3 2.6 14.1
r5 5.6 9.3 14.2 21.6 17.4 15.2
ccO. 3.3 8.0 8.6 4.6 4.9 6.3
eO_ -0.2 7.5 10.3 3.7 4.2 4.9
e:.O 13.3 39.8 26.4 20.2 23.4 18.0
uo c.. e.e:co. 0.4 16.8 7.2 5.7 7.1 2.6
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c.:. o.ec eO. 5.9 5.4 1.2 1.4 1.6 2.9
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.c.r. 3.5 8.0 8.2 6.4 6.3 6.9
uQ,dY%h ( ckf,aLk yd ixLHd f,aLk fomdr;fka;=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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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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 unied
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 scal 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 identied 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 nancing 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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Oc.uc Ou occ 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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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 unied
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 scal 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 identied 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 nancing 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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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 unied
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 scal 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 identied 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 nancing 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 ! > c c c cOo
,.c... _cr
croc 2010 2011 2012 2012 orc,c. 2013 orc,c.
()
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r.or.or crcr 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.u 865 1,037 920 705 734
r.or crcr 6,097 7,992 7,371 5,519 5,453
ecc_ :. o.5 3,356 4,191 3,991 2,973 3,127
o.:.c, c.u : 5er._ 245 348 284 213 167
c-c u.c.u 558 885 859 644 616
cuc c : c.ucr crc. 259 312 297 225 218
-u: ec_ u.c.u 263 553 463 352 337
oeurc r.ccr ocucu 1,416 1,703 1,477 1,112 988
-rooc crcr 24 33 61 42 28
Oo.ro<c cr.ror _ 199 6 10 7 9
.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
roo, .<. 8,054 12,275 11,570 8,552 8,529
-: ec_ 3,041 4,795 5,037 3,715 3,829
ecc_ : o.5 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
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cuc c : crc. 1,339 2,141 2,356 1,600 1,696
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cO.:u crc. 593 1,065 992 818 467
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cOq 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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c,cO:u +s > ccOr cco< cc drc. r.<. cc drc. cOcc._ rO 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 unied
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 scal 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 identied 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 nancing 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.
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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..O.r cO:u o:c, drc. :c.uc :. o_
c:c:: rc.:.r r. 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 unied
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 scal 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 identied 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 nancing 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. <c cc cO,c c.c
e-.e:. Oc.: o.c.cu : e..u. c:.:cr e
c.:. .c c...c O.c:..: e :_ o.cr .u
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rr. cco.rOr
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.... :. c.u . cec.cc 5.3 5.8 4.1 3.5
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cr: c.:..uc 8.0 8.0 7.7 7.5
Oc.: o.c.O - 4.2 4.1 4.2
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uQ,dY%h World Economic Outlook (WEO)-Transitions and Tensions, 2013 :re:.-c" :.:.u:c .. oc.
ecuO. eu c, cr: :ucc : :c.uc o:
Oc.: o.c.r u ...r.u .c5 rc...c.
ou..uc eu.r_e:.: :_ .c ..O5 e::eOu
o:Ou o::rc -c,5 O.: .Ou o:. c o:c.,
:.:.u:c .. oc.e: zo+ :re:.-c World
Economic Outlook ouO Oc.: o.c.rcu : :_
.c ouc.: : .. er.Orc.c .u .O.
cO:.e:.: uO .. oc-cr o: c :r -OO
ou..u rc o:. uu.:.rO, u. cu eO_j
ec._ : Oc.uc eOcu cO:u o.c.rcu : c.:.
.c, .e.u.c.:ec c:.:cr e c:_ o.cr
.uu. o:c, zo! .e. 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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oO
cco.rOr
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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 unied
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 scal 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 identied 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 nancing 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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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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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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 unied
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 scal 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 identied 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 nancing 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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r O.ecu c...u cO.: -. .u o:c
-.ec.ec.:: eo.
cc. rc.r
c ..r o.e.. :uc: .: uu ou:c-r
cr.. .c . ouc.:c (LIBOR) zo+ : zo!
uOHu
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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:::OcO c:o.: .. zo! Oc.ec ocucu
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erec. u: eO_ .5O : r.cc o.c.r
:ec..:.Oc .r:.: o. :u Ou c:c: -c,.
: cuc : :c.uc .. o: rc .u.O ec.:
u: eO_ .5O -c,. ocucu :Ocr
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rOc: c.c.c o.: .. e..ecu. ou:c
c.. : o.ec.:u c.. o.ucu g. O o.
e::eOu zo! Oc.ec o.ucu ccO + ru c..
Oc.uc Ou o:c oecr.. erec. D.cr rOc:
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c: ..O.ru crOu o:c oecr.. erec.
zo! Oc.ec eOr ec..O e o.e.. -cu
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o.ec.:rcue. .O.c O o. c...u ..e.:
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 unied
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 scal 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 identied 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 nancing 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.c.r :e::r rc...c. r..urO orcu
-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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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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 unied
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 scal 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 identied 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 nancing 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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u.Dcr.cOc,
o.uc,Occ.e. u uO cuc,c..cuc,
O.:u ucc, c...rc.c j:.
ec.ccc, c.r.. c:r: :c er:
r.cc.cr ..cc r., c. cu,
eO., -, r.cc. crc., e..u,.
:. r: cuc,c..cuc :.
O, c. r..
22,000,000 17,900,000
6
c.:. eO. er.c.u
c.O
O.:u c .,u. - :. r.cc.
crc. c .,u..
800,000 6,800,000
7
o.rc. eO.
er.c.u c.O
-, r.cc. crc., cuc :.
cuec.crc. c .,u.
700,000
8
:.cr ec.
er.c.u c.O
O.:u c .,u.
5,150,000
10
o e:. q..
eD.u. .c..
er.c.u c.O
uc u..u j:. e.. .u., eO. :
uO r.cc. e..u,. r.. 4,040,000 16,500,000
12
:.cr o...cu
er.c.u c.O
- : r.cc. crc. c .,u.,
u.u, eO. : cO.
360,000 700,000
13
. r. ..uO :cr:
er.c.u c.O
O.:u c .,u..
6,500,000
14
uccc
ec.cce:ucO
o.:.cc.u :. u o,:, O.:u ocO,c.,
c. cu eO. : ,cc:
17,175,000 3,000,000
15
uc erO:cc
:c.u
ec.cce:ucO
e..u,. r :. c_.c c.u o.ccu -
9,000,000
16
c.ce:ucO O.:u c .,u. : ..u c: 3,000,000 4,000,000
cOc cc.c ccO. cc cc Oc.r. O.rO O..o.rc cOcr oc. c.<....oc cr _-. r
oro.r (zcI+ orO. cO corO-o rO.)
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
19
c.ce:uceo
cr. u.crc..e.
r.cc.c
..u c:, cO.:u c: : O.:u c
.,u.. 1,490,600 10,650,000
20
.,cOc.
ec.cce:ucO
cc,, Oc., .... c_.c c. .,cOc.c
j:. O c:, ::-uec.O .,cOc.
r.cc.c j:. O c:, o.:.cc.u :. u
o,:, e. ..u c:, c :. :c
755,600,000
21
..r..cc eOuc .u. 56,000,000
22
cc.u rOcc
c_- c.ce:uc
er...c..e.
r.cc.c
- : r.cc. crc. c .,u. :
..u c:.
440,000 543,000
101
-...u :. o..cr
rOcc o..c...c
O.:u c .,u. euc.ec g:-uec
c:. O.,.. eor...cc uorc.c
r., zo+ ocO,c ec.:u. ouO o..cr :.
r-cr O.u.r: cOc.uc :. o.c
:.c..uc ccrc.c r., o.:.c c.u
:. u o,: e. ..u c:
50,683,200 70,600,000
201
e-. rOcc
ec.cce:ucO
e-. rOcc :-u.rc. u..u j:.
..u c:.
5,800,000
204
:u o..cr :.
r-cr rOcc
ec.cce:ucO
c. cu.
4,500,000
102
. :. r.:c.u
o..c...c
. r. r.:c.u eOc :. . r.
..r..r. eOc j:. u..u -jO.
.,u., cc. ..: o.cr.. O,O:ur
,r. j:. -.u cu ..:.c r.,
O.:u c .,u., c. cu, zo+
Oc.ec ocu ..cc ec.ccc, c.r..
r_.u.rc. ec.cce:ucOO o c:,
zoo Oc.cO o_O O.:u u: rc.,ue:
e.c cc cc,- cco., zo+ ocO,c
ec.:u. :. r_.u.rc. eO. Dre-
or +o ouO ..: o.cr.. ..c j:.
.u. :. c. cu
114,219,799 45,723,165
237
:.cr r.:c.u
ec.cce:ucO
...c. :. cr.c ..: Oc.uc j:.
Ou ccccc :. Oc.u O,O:u j:.
-.u o...c . ..:.c r..
39,650,000
239
e. :cc
ec.cce:ucO
c.c.r o...c .c .u.eo O-ccc
:. c.r.r c:. .....uec ..cc
r. :. ..Oceu ot u.cec: ..c.c
r., c..r c.. c_ .,u. :
e. ..u c:.
3,000,000 1,020,000,000
240
:.cr ocO,c
ec.cce:ucO
r- cu. .c -..c O.:u j:.
ec. e.o., zo+ ocO,c ec.:u. ouO :
Oc:rcu j:. .u. e.o..
671,600,000
cOc ccc ccO. rOoOr...
c,cc
cooc
o..c...c
ec.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 unied
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 scal 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 identied 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 nancing 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
ec.cce:ucO
ec,: re: ..c : eOuc c:
2,200,000
243
Oc.u ..
ec.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.:. .
ec.cce:ucO
o..c. ..c u cc rcu e..
.c.. ..c j:. .u.
1,150,000
246
e.c o.c:
ec.cce:ucO
- cc.uc j:. c..r zz r c_
.,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 .,u. :. ec.O
u zoo Oc.ec O c.:. o.ccu eOc
u: rcu O.:u :. - cco.
" 13,926,000
249
c.....c e.e:c:
ec.cce:ucO
c.. rcu e.o:, .c cc.u c:,
o c .,u. j:. Drc oc.e: ..O
O, r.
1,370,000,000 1,553,000,000
250
c.:. ..:
ec.cce:ucO
r.cc. e..u,. ocO,c.O
8,000,000
251
crec,
ec.cce:ucO
zo or !+ c. cuc cOec c:cO
cOc..c c. -u c.:.O..c.c j:. zoz
e,:-c Ou u o..c. .. cc.c
ouO Ou e.o. :. eO. c:.
1,400,000 2,100,000,000
252
:ue-u :.
-.. e-u
ec.cce:ucO
.c c.: er.ce: uce. ouO c.c
e:ceOu O c. :. ec :.u c_-j
..uc o.c:c r., zo+ ec-cO. zs
.,. ueoucO ouO o.c.r ..ucr
c,O,co., e. ..u c:, ..: o.cr..
c.r r r. j:. o...c ..:.c
r., zo Oc.ec cOcOu :u.:u :.
uO. ..uc j:. O c: cco..
1,500,000 472,512,129
280
O..c-c r_.u.rc.
:. o.r..
ec.cce:ucO
cuc : cuec.crc. occc rc
.,u., O..c-c r_.u.rc. :. o.r..
ec.cce:ucO .rc.c r. j:.
o..c . ..: .c r..
700,000 3,230,000
296
o.ucu :.
ocucu c.u
ec.cce:ucO
ereO.ur c.cc :c:. o.ucu
ocucu rOcc c:rc . j:. c..r
c.cc O,c. r..
4,000,000
323
uc rOcc
ec.cce:ucO
cuc : cuec.crc. ucc r..
400,000
cOc ccc ccO. rOoOr...
c,cc
cooc
o..c...c
ec.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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal 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 ce.O
.Occ c.u rOcc rc.c.r r.,
ccec.. :. Oc.u rOcc, O.:u c
.,u., c.rr, erj :. o,7c.c cu
..uO c ec._ o..c Oc.uc, c.c,
.:..u O..c-cec -cc cco., ..:
o.cr..c j:. Oc.u O..c-cc, -
crrc c u ocO. r_.u.r.
O..c-cc, c :. :c, O.:u ocO,c.
r., cuc :cuec.crc. occc rc
.,u., ec. c.:. ..c c.:. u.cr
.OO o c:, zo+ Oc.ec ..cc
ucc :. ..c c_-j uO o..c...ec
cuc.Occu :.
c...u c:.
207,500,000 1,432,100,000
222
. r. c. :.O r.cc .. c:. O,O:u, O.:u c
.,u., e..u,. occc r.,u., ec.
c.:. ..c c.:.u.cr .OO o
c:, u.u c:.
500,000,000 414,500,000
223
. r. u.r :.O zo+ ocO,c ec.:u. ouO u.r ..
c.c Oc.uc, O.:u c .,u. :.u.r
c.c.O ucc rOcc.
766,500,000
224
. r. .Ou :.O e:er.cOc c.u.Ou c .,u. j:.
ccO r occr.c: . e.o., c..
.Ou c.c r. c..u O,O:u,
O.:u c .,u., e. ..u c:, O.:u
ocO,c. r., c :. :c, r.cc
.. c:. O,O:u, ,cc: c:,
crc. c .,u. :. .:uOc oc.ucc
.Ou c.c r..
325,000,000 3,045,850,000
225
ec.
ec.cce:ucO
O.:u c .,u., : c:.cr crc. c
.,u., ec. c.:. ..c c.:. u.cr
.eO: e.. o.c..ccue. o.cr.rcu
j:. u o,: ,cc., o.cr.r crc.
c .,u., cO., u.u :. oeurc
c:.
284,500,000 669,519,500
226
o...u :. ..u
ec.cce:ucO
.cc :.c.ucc .Ou ec.Oc c
c:r: o,c r., ucc.u dcu
ecc_. c cOO c,o. j:. O ..u c:,
ereO.ur o. urc r. j:. c:r:
O, c. r., ..u -cc crc
oo,ooo r c .,u. :. eO. c:.
47,987,200 314,927,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
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 unied
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 scal 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 identied 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 nancing 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
o.cr.r
ec.cce:ucO
c:ec u..u j:. ec .c ec.
e.o..
70,000
105
o.c.r Oc.u
o..c...c
-: e-.:- oO..u. c_-jO uOc r.,
: :.cr -: e-.:- rc.c:c re:
O,O:u, O.:u c .,u., zo+ ocO,c
ec.:u. ouO :r. c.O uO
Oc ., c. u o,: : c.O:u
c.r eu.ce -.. :. c.c, u,..
e.. .cec.:u. r.c rc.c.r r..
ocu -jO. .c oc...c c....u
j:. .u., zoz Oc.ec o,c O .Occ
e:ceOu ccc. crrec u..cO cc
uO. cuc,c..cuc, c. e..u,.r
r. j:. e. o...c ..:.c
r., zo+ Oc.ec ..cc o.ec.:u cOc.u
o..c...ec cuc.Oc.u :. c...u c:,
O.:u c .,u., o .-.Or r., c.
cu, O.:u ocO,c. r., - r :.
c_.c c.u o.ccu - e.o. :. .-.
o.r.ec eOrcu j:. O,O O,Oc -.
..
2,966,200,000 554,840,000
106
o.c r_.u.rc.
o..c...c
. r.eo o.c oOu:
r_.u.rc.cre: c..cc : ecc
o.c oOu: u: e: O,O:u ,r.
j:. ,- o...c ..:.c r., O.:u
occc rc .,u., .O....cec r: u.
r., e..u,. ocO,c. r., c:ec
eOrcu j:. ec_ .cec., ocu
-jO. .c oc...c c....u j:.
O,Oc :. .u., cO.:u eO., zoz Oc.ec
crr r c o,c O . Ocecu
o.c:.ucO cc uO. cuc,c..cuc
44,138,000 542,460,182
304
r... ..
ec.cce:ucO
u.u, c_.c c.u o.ccu -, -
:. r.cc. crc. c .,u., O.:u
ocO,c. r., eu.ccO -cc ucO
r.
1,050,000 24,685,000
308
c,c,
ec.cce:ucO
O.:u c .,u..
78,000,000
1 1 0
o.rc. o..c...c e.....rc. :. occ.Du..rc.
uc,Ou :. o..c...c j:. O.:u c
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239,700,000
228
o.rc. cc.uc o.rc. e..u,. Oc.u :. e..u,.
cuc,c..cuc:. O,c. r., - :.
r.cc. crc., c. cu, c :.
:c.
145,000,000 130,000,000
233
c:ec c cr.r
ec.cce:ucO
uO r.cc. e..u,. r.,
cr.....c :crcu -jO. .,u., :c :.
c : O.:u ocO,c. r..
25,000,000 176,000,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
234
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ecO.c
o.rc. O.cc. cr.cO .-.rc c,-.
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9,000,000
111
e-. o..c...c O.:u c .,u., ec.: :r Oc.uc
re: O,O:u, :.. c .,u..
250,000,000 450,919,956
112
e. rOcc
o..c...c
eO..uOu : c:. . r. c.u.cc
r.cc.c j:. e..u,.r occc
rc.,u. :. crc. c .,u., uOec
. r. c.u.cc r.cc.c j:. u uO.
r., -c, -:ecu :. e.-u cu .
r. c.u.cc r.cc. j:. O.:u c
.,u., cuc : cuec.crc., - :.
r.cc. crc. c .,u., cO.:u .u.,
eO. u.u :. cO.
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 eOrcue.
O,Oc eocu
2,062,850,000
306
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re: O..c-cc cOec O :. -cc cco.
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500,000,000 400,000,000
115
-u: ec rc..uc
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26,940,000
116
.cr.c :
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o,c O c. o.Oc.crc .,u..
295,000,000
117
Oc.c :. .:. ..c.
o..c...c
O.:u c .,u. er._. cOc OOcO.
o.eo. ..c.c rOc O ercOc.c rO.
er.O :. cc, o.eo. ..c.c Oc.uc
r., er._. - rOu.cr o.eo. ..c.c
Oc.uc, :.c.ucc .c ..uc
:. ucu ..c oOe-..c. .. j:.
:..: :. cr . e.o., c.cec..,
c.:..uc, r.:c ..c. O..c-cc, r.
c_.c o.eo. ..c. Oc.uc, -u.:c
c_.ec .. u,..`` cOec O .:..u
Oc.uc re: O,O:u cOec u..r
ce.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 r.
:. Oeu.c.c Oc.uc, c r.cc
:uc.Oe. Oeu.c.c Oc.uc :.
:c..cO O,O:u rc.c.r r., O.:u
c .,u., c. cu
20,000,000 94,700,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
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 unied
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 scal 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 identied 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 nancing 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.
ec.cce:ucO
: u.c.ucO o -: uc.ecu ccO
cc ce.O e..ou occ e-. :. zo+
ocO,c ec.:u. ouO r-.r.ccr oc..
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257,024,285
119
- :. -.rc
o..c...c
O.:u c .,u..
12,000,000
120
_.. Oc.u :.
r.uc. rOcc
o..c...c
O.:u c .,u. r,r u _..
o.cr.. O,O:u j:. cu
..:.c r., e..u,. r e.o.,
- :. r.cc. crc., cuc :.
cuec.crc., r.cc. c:r: c r.
:. :.cr _.. o.cr.r o.r.c j:. c.
cu.
67,500,000 39,750,000
121
c.:. cc.u :.
Oe. rOcc
o..c...c
c_.c c.u O..c-cc, O.:u c .,u.,
- r : c_.c c.u o.ccu -,
e..u,. ocO,c.O, cc, :. u,e.
u:c c_.cOO . r. euc, eO., .
r. ..c.r eO. : . r. cc.u
eO. u..u :. ... u_..u -jO.
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100,000 50,570,000
254
ecO.c :uc.
ec.cce:ucO
e..u,. r e.o: eO. j:. c:
49,600,000
255
cr er:
r.cc.c - er._.
oc...c c....u :. .u.
50,000,000
256
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r.cc.c-.:c:
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210,876,707
257
cr er:
r.cc.c-rcc
oc...c c....u :. .u. :. ..u
c:.
80,800,000
258
cr er:
r.cc.c-.:uOc
oc...c c....u :. .u. :.
c:ec eOrcu j:. ec .c ec.
e.o..
151,250,000
259
cr er:
r.cc.c-..ce
oc...c c....u :. .u.
72,800,000
261
cr er:
r.cc.c-..
oc...c c....u :. .u.,
crr. : rcueuc cr er:
r.cc.cu: uO e..u,. r. :.
e..u,. cuc,c..cuc :. O,c.
r..
100,000,000 1,985,000
262
cr er:
r.cc.c-..cc
oc...c c....u :. .u.,
155,700,000
263
cr er:
r.cc.c-::-uec.O
oc...c c....u :. .u. e.o. :.
eO. :. ... .,uoe: cc.c e.o..
142,860,950
264
cr er:
r.cc.c- rcecc
c.cuc
oc...c c....u :. .u., o.:.c
c.u :. u o,: , c:ec u..u j:.
ec .c : ec. e.o., c. cu,
e..u,. :. r:, :c :. c
151,952,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
265
cr er:
r.cc.c-rcecc
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ocu -jO..c oc...c c....u O
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17,280,000
266
cr er:
r.cc.c-rcecc
Oouc.O
ocu -jO..c oc...c c....u :.
.u. e.o.. 36,840,000
267
cr er:
r.cc.c-rcecc
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ocu -jO..c oc...c c....u :.
.u. e.o.. e..u,. :. r:. 24,000,000 54,000,000
268
cr er:
r.cc.c-rcecc
reu.ccc
ocu -jO..c oc...c c....u :.
.u. e.o.. 40,000,000
269
cr er:
r.cc.c-.rcO
zo+ ,cO rc,_ :.cr cc.ucO ...cO
c.e.c Oc.u rOcc j:. Ou c:,
c. cu, u.u, O.:u ucc, :c
:. c.
230,000,000 950,000,000
270
cr er:
r.cc.c-o:c.c
zo+ cO rc,_ cc.ucO ...cO c.e.c
Oc.u rOcc :. cc.u ccc ccc
r r., :.. eO.Ou j:. Ou c:
: eOuc cuc.Occu c:, oc...c
c....u j:. .u..
116,060,000 600,000,000
271
cr er:
r.cc.c-
cr...c
zo+ cO rc,_ cc.ucO ...cO
c.e.c Oc.u rOcc, cO. :. r.cc.
oO..c., :. oc...c c....u :.
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78,000,000 650,000,000
272
cr er:
r.cc.c-rc,.,.
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409,000,000
274
cr er:
r.cc.c-ouc..ccc
oc...c c....u :. .u. c.
cu, u.u, O.:u ocO,c.O :. eO..
106,312,000
275
cr er:
r.cc.c-
ec.e_.uuc,O
zo+ cO rc,_ cc.ucO ...cO c.e.c
Oc.u rOcc, oc...c c....u
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r.cc.c :. u uO r..
40,000,000 360,000,000
277
cr er:
r.cc.c-e...c..
zo+ ocO,c ec.:u. ouO O,Oc O,o.
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cuec.crc. c .,u..
3,550,000 50,000,000
278
cr er:
r.cc.c-ccucc
oc...c c....u :. .u. :. c.
cu.
233,500,000
279
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r.cc.c-r,.
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u.u c:
120,475,000
122
:u.... :. cO-cc
o..c...c
O.:u c .,u., ec. c.:. ..c
c.:. u.cr .O j:. :u uueou
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231,000,000 23,000,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
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 unied
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 scal 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 identied 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 nancing 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. .|-
123
r:, euc,
eO., uO. :. ec.
c:r: o..c....c
ueceO .: uO. O..c-cec: O,r_
c.cc ocO,c. r., :..cc.
r_.u.rc. o.r.ec : r: :
Oc.u c:. o.r.ec :. -cc
ucO r., o.c.r Oc.u o..c...c
:-u.rc.ecu .c.:. o .-.O
r., u..r :u.O. Oc.u
o.r.c ..u e.e:c Ou uO. Oc.u
O,O:eu: -cc cco., cuc :
cuec.crc., O.:u ocO,c. r.,
c :. :c, ..u c:, :..cc.
r_.u.rc. o.r.ec : o..u u..r
uO. O..c-cec c. cu e.o..
14,308,000 142,000,000
309
e..u,.
ec.cce:ucO
o.:.cc.u :. u_ o,:, : O,c. r..
124,000 2,000,000
3 1 1
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,:
ec.cce:ucO
o.rc. cc.cr ouO ec.e.uuc,O
uO. uercuc r. j:. O :. -cc
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8,459,724
124
..: eO.
o..c...c
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:.cr ..: Oc.u o.ccuec e..u,.
r e.o., c :. :c, O.:u ocO,c.
r., e..u,. :. r., c. cu.
18,671,000 27,300,000
126
o...cu o..c...c u: eruc cu: er.O.c O..c-cc
ouO c., o...cu c.cc ccuc...c
r., cc c., :r Oc.uc re:
O..c-cc cOec .:uec c.r.r
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oO. c:r: :c c., j:. :c :.
uc.cr.r eO. ,cc., o.cr.r eO.
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o...cu Oc.u O..c-c, :.cr o...cu
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O..c-cc, rc.c.c ... .:. ..c j:.
.O....cc :. ccr.c r., c.
cu :. zo+ ocO,c ec.:u. ouO c_.c
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419,737,000 2,455,026,000
213
o...cu cr..u
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43,000,000
127
r:rc, :. r:rc,
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10,000,000
128
:ccr rc..uc
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c:. .c. u.c.u rc..uc ...
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r.cc. crc., o..c... e..u,.e
rc :. c. cu.
7,000,000 138,500,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
124 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
130
c_.c c.u :. c_.c
c. o..c...c
c_.c c.u o.r.c j:. O,rOc c
.,u. :. c.c c:r: O,c. r.,
O.:u c .,u., c_.c c.u .. uc.c
re: :.cr rcOeo c:, .... :. -c.
.O c_.c ..c. O..c-cc, zo+ ocO,c
ec.:u. ouO cccr. c. j:. e..
O,O:u rc.c.r r..
43,134,770 1,675,830,000
312
-u.:c c_.c c.O o.:u...ccr r. :. c. cu 800,000,000 167,000,000
313
.... c_.c c.O : O.c.r o.c cuc,c..cu O..c-cc,
c_.c ..c. O..c-cc, c. cu :.
zo+ ocO,c ec.:u. ouO c_.c .c, c:.
O,O:u rc.c.r r..
550,000,000 310,200,000
314
r. c_.c c.O crc :.cue. _.. oc. ..u -.u
o...c ..:.c r. :. c. cu.
450,000,000 808,125
315
cc, c_.c c.O crc :.cue. _.. oc. ..u -.u
o...c ..:.c r., cc, c_.c ..c.
:-u.c. O..c-cc, c. cu.
480,000,000 225,059,000
316
Oc. c_.c c.O Oc. c_.ec . Ocu :.ucO cc c_.c
..c. cuc,c..cuc :. c. cu
485,000,000 50,000,000
317
cc, ., c_.c
c.O
zoz cO rc,_ cc.uc cOec :c..O,
cuc.e :. :.c.. - ceu.c.O ..c.
cuc,c..cuc, : O.c.r o.c
cuc,c..cu O..c-cc, .Ocu :.ucO cc
..c. cuc,c..cuc, u,e.u:c :. cc,
., c_.c ..c. O..c-cc, c_.c .c, c:.O
O,O:u :. c. cu.
273,000,000 1,459,000,000
318
O c_.c c.O u,e.u:c :. O c_.c ..c. O..c-cc :.
c. cu
330,000,000 1,678,000,000
319
-c..O c_.c
c.O
.... :. -c..O c_.c ..c. O..c-cc :.
c. cu
345,000,000 376,000,000
321
u,e.u:c c_.c
c.O
u,e.u:c :. O c_.c ..c. Oc.u
O..c-cc, crc :.cue. _.. oc. ..u
-.u o...c ..:.c r., : O.c.r
o.c cuc,c..cu O..c-cc, u,e.u:c
:. cc, ., c_.c ..c. O..c-cc, u,e.
u:c c_.c ..cc ..c. Oc.u O..c-cc
rc.c.r r..
287,000,000 2,232,748,000
133
c.r.. :. ccec..
o..c...c
r-. o.:.c O..c-cec: :. -cc cco.,
-: r.cc .,.. ccrc. O..c-cec:
O,rOcc : u,eu. c.r.. ..uec
rOcc oOu r. :. c..r O. u.u
-OO cOccuc re: O..c-cc rc.c.r
r..
278,160,037
134
:.cr c... :
..: cr.-.c.
o..c...c
O.:u c .,u., c.:. c... er.c.
c:. uO e..u,. j:. r e.o.,
crc.cO . ceo.cO O,O:u
j:. -.u o...c ..:.c r., :.cr
cr.-.c. :-u.rc. u..u ...
e.cO -jO. .,ue: O-c cc. c..c.
12,113,360 9,907,892
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
125 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 unied
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 scal 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 identied 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 nancing 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. .|-
135
O, rc..uc
o..c...c
ec ccec.. o.ccuec eOrcue.
r.cc..uc :. Ou cccOc :_ u,o.,
O.:u c .,u., zo+ ocO,c ec.:u.
ouO r. c... ec u.c.uec ucc
oc j:. ec eue: uO cuc crc.
:_uO. ..
66,098,050
293
c-c Oc.u
ec.cce:ucO
O.c.r c-c u.c.u cOO j:. O
..ec O.c.r .:.c. do. : rcO d
o. . r.eo c,O,co..
10,000,000
136
r. o..c...c O.:u c .,u., zo+.o.z+ u,c o..c.
.. cc.c .c zo Oc.ec c,O,co.O
uccc o.c.u ecOu r. e_e:
rOcc o.c:c r. :. r. o..c...ec:
e..u,. ocO,c.O.
51,400,000
219
r. Oc.u
ec.cce:ucO
.,c r.OO :.c.ucc ..Oe: c.cr
-..O rOcc r..
149,000,000
138
e.c eeO.
o..c...c
O.:u c .,u.
11,500,000
220
o.cceo
ec.cce:ucO
..cr o.cceo eeO.Oc,u j:.
c.ec..r e.o..
500,000
139
.Oc :. :: :cc
Oc.u o..c...c
r:O .Oc Oc.c Oc.u O,O:eu :.
-cc e.o. :. u.c ouc.c eOuoe:
c:, O.:u c .,u., c.D.c u.c
eOc_ ccrc. :. :cc r_.u.rc.
O,O:u, : Ou :ec..c. O,O:u
:. e. ..u c:
1,500,000 515,500,000
290
.Oc :. :: :cc
ec.cce:ucO
c..u O,O:u :. .Oc cc
-.,uo., zo+.oe.os u c,Oc r..OOO
: O .Occu j:. :u ,., eO.
c: : c .c ec.:u. r.c ccO !
r ec.cr .c rc.c.r r..
111,200,000
140
c. :cc :.
..cc c:. Oc.u
o..c...c
O.:u c .,u. : . uc.c rcu
.r.. O +o,ooo r o.ucuc r.,
e..u,. cuc,c..cuc :. O,c. r.
:. c. cu
23,500,000 104,065,679
142
:.cr c,.cu c_-
o..c...c
O.:u c .,u.
11,500,000
209
:.cr e-u.cr.r
ec.cce:ucO
c : :c
11,500,000
143
c.ce:uc rOcc
o..c...c
O.:u c .,u.
8,000,000
145
u,Oc cc re:
o..c...c
r,,e-..O,O cO ,oo r u,Oc
cc r. :. O,:c u,Oc cc re:
O,O:u cOec uO. oo r r.,
cc :. ouc..cc cu crrO cO eo
r u,Oc cc r. : O.:u c .,u..
61,287,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
126 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
149
rc..uc :. O:
rOcc o..c...c
O.:u c .,u.
10,000,000
303
ec.rc.
ec.cce:ucO
so - sz r.c c ec.rc.c rcu
ece:r::O eOc r_ eOrcu j:.
Ou e.o..
183,700,000
152
O...c. :. ::cc
r_.u.rc.
o..c...c
.,Oe. .:O, . Oec o.cr..O j:.
c.uc.cr rc.c.r r. :. c..u :
.... O...c. ec.:u. r. cuc,c..cuc
435,000,000
282
O...c.
ec.cce:ucO
zo+ Oc.ec c.rru :c :..ec r:
oOu r..
750,000,000
153
: :. :
Oc.u o..c...c
e..u,. cuc,c..cuc, O,c. r.
: .... crc. c .,u..
2,853,540
286
: er...
ec.cce:ucO
c :. :c
6,330,000
156
ecOu rOcc :.
uc.c. Oc.u
o..c...c
O-ccc c:. o.ccu z r cuc,c..cuc
r., cuc :. cuec.crc. c .,u.,
c: O-ccc c:. .....uc,
u.eo: O-ccc c:. .....uc :
e:.O c., e..u,. r., r.ccr
o...cu :. O-ccc c:. o. Oc.u
O..c-cc cOec o..cu r.cc ..ec
u. Oc.uc r., zo+ ocO,c ec.:u.
ouO e.r ec.Ou .O j:. . .rr
cc,. cc,cu u: r., O.:ucr c
.,u., Oc drc. cc.u ..c:cr
O,O:u j:. .c -.., cuc c
crc. c .,u..
969,685,000
215
r.ccr o...cu
: c:. re:
ec.cce:ucO
..ce r.ccr ..c :.
e..u,.r r. :. o:c.c :.
r.ccr ..c O, c. r.
110,000,000
160
cc o..c...c . r.eo e..r ccc.cu crec,
r. :. -. u o...c ..:.c r.,
Oeu.c.c .rc.c r. :. c.c:cr
u. c_- :.cr cccccc rc.OO
u,o., - r_ :. c_.c c.u o.ccu
- e.o., e. ..u c:, c_c,
O,O:u, :.c.ucc :e:u, . :. u
D.c, O.:u c .,u., e..c ccc.
cr.. c_- o.c.u ..ucrc :.ec
zo eOu :.cr ce.u rcOO :. cOu
r. o.c. c r.cc do. :. O..c-c
ec.:u. Oc.u re: c:. O,.eo
cr.cr c.:.c e . r.O rOcc r.,
c O., u.u, c :. :c, eOuc
eO. :. O.:u ucc
14,750,000 109,775,000
283
Ou cr..
ec.cce:ucO
c:ec eOrcu :. ec .c ec._
3,500,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
127 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 unied
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 scal 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 identied 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 nancing 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. .|-
171
o...cu
o..c...c
ecc.ec .O ..ec cr..
r.cccu O, c. r. :. -. u
o...c ..:.c r., O.:u c .,u.
:. .O ..O euO.r...c eo r
uorc.c :. occr.c: e.o.
1,352,956,503
214
.O .. ccc.u
er.c.u c.O
O.:u c .,u., c.D.c eeO. c..
o.ccuc u e.c c.. cr.rOc,uO
.u. e.o., zo+ ocO,c ec.:u. ouO
zoz o..cu Oc.c :. .O ..OO
O, ... -..Or -O. .,ue: c:
7,200,000 1,509,150,000
173
c.:. r_.u.rc.
ccrc.
o..c...c
- :. r.cc. crc. c .,u. :
e..u,. cuc,c..cuc :. O, c.
r., uO r.cc. e..u,. r e.o. :.
u.u
42,000,000 7,300,000
174
cuc,c..cu
:. -u.u.c
ccrc.
o..c...c
O.:u c .,u., O.:u ocO,c. :.
er... r.cc.c O,c. r.
36,200,000
232
-u.u...c
ec.cce:ucO
crc,Oue. cO.:u c:r: :. - c.
c .,u., cuc : crc. c .,u. 47,224,000
326
c:. c.r e...u
ec.cce:ucO
.-: c.. : r.cc. crc. c
.,u.
4,700,000
175
c.:. :cc :.
O.O.c Oc.u
o..c...c
ruce u rc..uc...eo eOrcuO
zo+ oec . O,Oc :. eocu e.o.,
O.cecu ..:c :.cr r ...
e: eOrcu u cuO. o,c u :.
o_ e.o:, O.:u c .,u., :.c.u
u rc..uc...eo :. -,cr: cco.,
zo+ ocO,c ec.:u. ouO r eO_
:.c :. :-u.O c... O.O.ccu
Oc.uc r., :uc. Oc Oc.u
..c, . r. e.uc r::e
eOrcu eeur :. c.ec..rc
e.o.
400,667,757
176
.Ou eO.
o..c...c
uO r.cc. c.ec oc.ucc Oc.u
rOcc, . r. .Ou eOc O. O.c
.Ou eOcr -OO cc r., O.:u c
.,u., c. cu, ..u c:, eO.,
oc O,c. r: ..c :. ,cc:
34,371,235 178,854,261
177
r-cr :. r.
rOcc o..c...c
O.:u c .,u., ccc, c,cr c
.,u.
6,700,000
206
r-cr rOcc
ec.cce:ucO
zo+ :.cr r. e_ :. O c:
5,000,000
c,cc
cooc
o..c...c
ec.cce:ucO
r.c.c oro.Oorr o...r
cOc ccc ccO. rOoOr...
128 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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129 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 unied
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 scal 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 identied 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 nancing 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,... II
130 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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131 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 unied
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 scal 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 identied 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 nancing 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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132 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
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133 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 unied
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 scal 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 identied 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 nancing 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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134 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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uQ,dY%h( ck yd ixLHdf,aLk fomdr;fka;=j Y%S ,xld uy nexl=j
^w& ;djld,sl
135 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 unied
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 scal 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 identied 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 nancing 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 ( Y%S ,xld uy nexl=j
136 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
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137 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 unied
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 scal 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 identied 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 nancing 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.co c.OO ccoc zcI+
,.c..._cr
croc
r. I() r. z() O.oor
cco.rrr
. cOq ccoc -2,143.58 -2,412.96 -9,162
ocucu 2,363.17 2,297.85 9,935
o.ucu 4,506.75 4,710.81 19,097

.. ccO. (c.) 413.49 373.29 1,734
,-: 1,068.85 1,037.96 4,724
e.o: 655.36 664.67 2,990

,. .cO (c.) -459.11 -207.31 -1,280
,-: 58.83 55.26 334
e.o: 517.94 262.58 1,614

,. .<., ccO. c. .cO (c.) -2,189.20 -2,246.98 -8,709

. o..o c...o (c.) 1,357.13 1,496.36 5,804
ec.r :.. r.. (..) 1,355.27 1,494.78 5,778
u :.. r.. (..) 1.86 1.57 26

o. o..o .<o -832.07 -750.62 -2,904

_. c...r .<o 5.72 16.62 134
ec.r c...u r.. (..) 2.26 13.70 85
u c...u r.. (..) 3.46 2.92 49

_+. o_. .<o 1,500.17 1,156.49 3,469
.r.u (..) 573.43 415.42 2,561
-: o.ec.:u 172.92 171.14 1,059
e. -: o.ec.:u (..) 144.17 151.14 1,059
ec.rc. ,-:

ec.r .r.u (..) 188.79 13.45 522
,-: 263.03 97.37 900
e.o: 74.24 83.91 378

c:ec .r.u (..) 240.48 250.83 980
,-: 451.70 467.18 1,800
e.o: 211.22 216.34 820

er.r.u (..) 926.74 741.07 908
er.O eO_jc_ . o.ec.:u 38.68 81.47 250
ec.r er.r.u (..) -263.35 350.90 -815
O.: -,r (..) 616.59 179.16 993
c:ec er.r.u (..) 534.82 129.53 480

o. O,o c. rc,O -640.92 -233.70 0

o. cocO ccoc 153.60 -322.77 700

c. o_. cOrcO -153.60 322.77 -700

uQ,dY%h ( Y%S ,xld uy nexl=j
^w& ;djld,sl
138 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
cc c.or
,.c..._cr
croc zcII Ocr zcIz Ocr zcI+ o_ zcI+ c...
. e. cc 7,199.00 8,357.23 7,345.82 7,501.38
o.ucu o.Oc.c r_ :,r r. ..O (..) 4.26 5.25 4.69 4.83
_ u cc 5,958.00 6,877.25 6,254.58 6,334.11
o.ucu o.Oc.c r_ :,r r. ..O (..) 3.53 4.32 3.99 4.07
uQ,dY%h ( Y%S ,xld uy nexl=j
cc O.Oc.o o_r _-..r cr.ccO ccc <c
,.c..._cr
zcIz Ocr zcI+ c..cr Ocr
cr.cc O <c 1,903.6 2,957.8
e. O.O:.c . -,r crr 150.0 150.0
. r. Oc.u -,:rc 1,753.6 2,807.8

_,-O 456.6 1,429.2
e. O.O:.c . -,r crr 0.0 0.0
. r. Oc.u -,:rc 456.6 1,429.2

c.O 317.0 750.1
e. O.O:.c . -,r crr 0.0 0.0
. r. Oc.u -,:rc 317.0 750.1
uQ,dY%h ( Y%S ,xld uy nexl=j
c.oO ,r cc O.Oc.o o_ <c co.<c
,.c..._cr
croc zcI+ c..cr .
e.o.O o,c :cc. .c 25,473.0
c:ec e. .c 22,515.3
e.c .c cu: O e.c .c 2,957.8
. r. Oc.u -,:rc 2,807.8
e. O.O:.c . -,r crr 150.0
uQ,dY%h ( Y%S ,xld uy nexl=j
139 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 unied
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 scal 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 identied 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 nancing 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. .|-
cr.o..r cc roc rc.rcrc. o_rc
,.c..._cr
o_ orr .co.<c !"# Oco.<c ()
zcII Ocr zcIz Ocr zcIz Ocr zcI+
c,cr,O-o
. r. c,cc -10.43 -3.65
uc.u c,cc -3.22 -12.56
-.e. Or. 2.51 2.77
cr..u c,cc -7.54 -7.95
.ccc, e.c 6.38 -2.79
c.cuc -.c 3.76 -2.69
c.cO.u e.c 4.28 -1.81
uuc.u c,cc. -5.97 -17.10
ccu ece. 6.72 -5.69
er.c.u eO.u 8.40 -0.80
:c.u ecu -9.63 -12.19
uQ,dY%h ( Y%S ,xld uy nexl=j
c _.r. oc -,.rO cr .<....o -_cr
,.c..._cr
r._cocc Oc.rcc (cc.r .c) cr _ .,rOO_r ccO
(cc.r .c)
2007 41.8 41.8
2008 143.7 143.2
2009 36.0 36.0
2010 20.7 2.3
2011 161.9 167.3
2012 155.7 163.3
zo+ ,cc,:-c oOu 18.0 5.1
uQ,dY%h ( Y%S ,xld uy nexl=j
140 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
c._r .cc cqc. O.o -,.r o.r _-. ,r <c c.crc zcI+ or () (.)
co.<c
(o,._) (,)
o o_r `
c_c
I. r.oroo cc .Oo 332,203 13.6
ccu
ec 50,674 2.1
c-c 19,233 0.8
ec. 6,310 0.3
o 13,254 0.5
c_O : ccc, O.. r. : o.:.c ec.. 12,368 0.5
c. :cc : r e..c,u 7,970 0.3
.Oc 9,872 0.4
z. roo.rr 814,555 33.4
ccu
jr: 353,069 14.5
ccu
ec.r uO.c_ .,u:ocO,c. r: : jr: 165,608 6.8
u uO. 48,218 2.0
o.:.c :. c.u Oc. 58,790 2.4
ecc_ :. o,.: 94,588 3.9
O : - o,c_cO O u.c.u 7,026 0.3
r : r u.c.u 6,078 0.2
c.cur O.-u: ec:.. : uc.cr..O, : c-c : c..r
u.c.u
35,477 1.5
e.: eu.Ou -u: u.c.u 9,340 0.4
.r e.: u.c.u 11,362 0.5
r r_ e.: u.c.u, cuc : cO.:u crc. 73,361 3.0
+. ccO.
ccu 559,303 23.0
ec.. : c eO_.
D.cr rc..ucc 201,906 8.3
.. : O..c.c eO. 55,974 2.3
cO.:u 116,527 4.8
uueou : ec.ccc, c.r..c 20,427 0.8
.. : cr..u 27,459 1.1
o...cu 9,389 0.4
e-.c 4,366 0.2
u.r, .Ou :. ,cc: : c.. u.r..uc 10,131 0.4
!. c._ <c c. rrr.oO (,)
ccu 705,509 29.0
r cOcu c.ec..r c..
r 70,501 2.9
.c r.tcc 334,808 13.7
c. o...cuc 47,826 2.0
ec.r uc.cr..O 853 0.0
. co.o .oro< cc.or. ro (_ co..)
. orrO 2,435,649 100.0
uQ,dY%h ( Y%S ,xld uy nexl=j
^w& foaY Hjydr uqo,a tall j,ska ,ndfok ,o Kh yd w;a;sldr o we;=<;a jdc nexl= iska fm!oa.,sl wxYhg ,ndfok Kh yd
w;a;sldr ms<sno ldr;=uh ilaIKh u; mok f'
^wd& Kh" whsrd" jg lrk ,o yd , .kakd ,o ,am;a we;=,;a jk w;r tl;=lr .ekSf l%shdj,sfhys mj;sk uqo,a we;=<;a fkdf'
^we& ;djld,sl
^wE& lrudka; hgf;a jr.SlrKh lr we;s bls hgf;a we;=<;a lr we;s fm!oa.,sl ksjdi Kh .ekS we;=<;a fkdf'
141 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 unied
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 scal 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 identied 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 nancing 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. rc.rO_ cOrcO zcIzzcI+
cc. rc.rc zcIz
cc,.
Oc.rc
zcI+ o.o.
Oc.rc
zcI+ or.
Oc.rc
zcIz c,c.
Oc.rc
c _.r. oc -,.rco crcrroc cc._ rc.r
cc c .,u: ouc.cc 7.50 7.50 7.00 7.00
cc r.: ouc.cc 9.50 9.50 9.00 9.00

-o r,- c.o.r. rro -,.r oro< o_ rc.rc (-
,rO)
9.83 9.44 8.72 8.44
-o r,- c.o.r. OO cOcqcc. cOrcc rc.rc (cr _
.,rO)
8.86 8.36 7.80 7.10
-o r,- c.o.r. OO cOcqcc. cOrcc rc.rc
(crr<O)
9.31 9.30 8.57 8.28
.<....o -_cr
u 10.00 9.26 8.66 8.60
u sz 11.32 10.25 9.70 9.63
u +e! 11.69 11.35 10.66 10.57

<c cO rc.r
-c c,- ...u. c.- .c e: ouc.cc (ccc.) 14.40 13.77 12.09 11.94
-c c,- ...u. c.- .c e: ouc.cc (..r) 14.29 13.86 12.47 11.84
-c c,- ...u. .c e: ouc.cc 15.98 16.36 16.14 n.a.

r,rcr rc.r
-c c,- ...u. c,ucc ouc.cc (AWDR) 10.10 10.69 10.56 9.93
-c c,- ...u. .c c,ucc ouc.cc (AWFDR) 13.21 13.94 13.61 12.57
uQ,dY%h ( Y%S ,xld uy nexl=j
142 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
cr.. c.c..r _ ocrc cO .crc. o_rcr
o,cc_ cOrc
-o zcIz c,c. zcI+ c,c. o,cc_ ` cOrcO O
crrOc `
.c.o cc o.c.o cr.Or c.r 41.03 21,233.09 22,477.91 1,244.82 43.2 2.7
.c.o 34.32 17,590.23 18,656.63 1,066.40 37.0 2.3
c.u : ..u. 7.87 4,419.81 4,520.33 100.51 3.5 0.2
. : . u.c.u 2.29 980.13 1,030.79 50.66 1.8 0.1
.. : .: o.:.c 5.95 3,121.73 3,182.37 60.63 2.1 0.1
r, c : -ccc 6.11 3,141.70 3,468.93 327.24 11.4 0.7
ec : e:c 1.15 565.41 654.88 89.47 3.1 0.2
c_cc, 1.43 691.64 782.35 90.71 3.2 0.2
c_O 5.65 2,434.09 2,742.21 308.12 10.7 0.7
u, :,:, c,, eD.r. : cr, 1.54 802.71 785.99 -16.72 -0.6 0.0
o.:.c u.c.u (eO.c,..eu..) 2.34 1,433.01 1,488.79 55.78 1.9 0.1
o.c.o cr.Or c.r Oo. 0.87 527.86 588.13 60.28 2.1 0.1
er.c, ec : er.er.O. 0.73 456.63 513.61 56.97 2.0 0.1
-u: :c, -., c_cc, :
c_O c.
0.14 71.22 74.52 3.30 0.1 0.0
cOrr .c.o .,rO 5.84 3,115.01 3,233.15 118.14 4.1 0.3
,O cc c.Ocr 3.14 1,446.98 1,500.12 53.14 1.8 0.1
rO.c, o_c, _c, .,c cc crrr
r.r
23.72 9,125.25 10,357.59 1,232.34 42.8 2.7
..c _cro<, ..c .<. cc ccrr ..c
r.rr rO
3.60 1,451.73 1,497.50 45.78 1.6 0.1
cc+-. 3.16 2,214.37 2,230.36 15.99 0.6 0.0
cO.cr 12.26 6,357.87 6,545.32 187.45 6.5 0.4
crrcor 4.75 1,199.92 1,199.92 0.00 0.0 0.0
cr.ror cc c.cr.rr rOcr 1.50 6.6.41 642.22 35.81 1.2 0.1
...cr 3.94 1,556.17 1,578.11 21.94 0.8 0.0
. .<. c. ccO. 2.89 1,115.75 1,157.09 41.34 1.4 0.1
cco cro 100.00 46.307.54 49,186.14 2,478.60 100.0 6.2
uQ,dY%h ( ck yd ixLHdf,aLk fomdr;fka;=j
143 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 unied
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 scal 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 identied 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 nancing 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,... IV
zcI! .cO ,crcOrr cc. c.r O c_ _cr_cr
. r.eo - r.ec Oc.Oc : oecr.c .cO
o.c.r cOuc.Ocu .c cu: O zo! Oc.ec o.c:
o,ce:uc :. O c crcu c:c reo.
zo! Oc.c c_ o.c.rc c cu.r :cO
ccO . ru c.. Oc.uc Ou o,c,c
oecr.cc.
zo! Oc.c c_ ..uc ccO e r c.. c:_
..O.r cOcu o,c.
e..c o.c.rc .rc.c e c.. cccOcO cceo
c,c oecr.. erec.
zo! Oc.c c_ e.O: e..ec ocrccr cOcO.
.,ue.u e. o.c cO cOc .rc.c eo c,c
oecr.. rcc.
e. g. co. .. ocucu :_ cu o,c,c
oecr.c occ c e:ceOu e.c o.c.r rOcc
O,c. Ou o,c,c oecr.cc.
:_ o.c.r Oc.ucO :ec..c ro. j:.
c.:. ec.r o.cu u o.ec.:u :. occ.,
c.. j:. rcu -u g. :_ c,e.u
o.ucu O,o. e:ceOu o.ucu .ecr. O.ecu
:_ Oc.ucr ocrc .u o,c,c oecr.cc.
ce.u. e..Oc c. o.ucuec ,rc cc
Oc.ucr eo c,c -.ec.ec.cc eo.
ceO: e. cc Oc.uc o. c_u ,e-u
:ec..cc .. ..Oc u.c ouc.crcr
cOcO. .u o,c,c oecr.. rcc.
c:_ ec._ ouc.crcr c,Oce.u e.c o.c.r
rc.r.cr: .rc.c e Oc.uc oe: ccccr
O.ecu e.c g. Oc.uc eo c,c oecr..
erec.
.e.u. : oecr.c ccO r u.cr Oc.ucO
ouc,c Ou e . ,cce: Oc.ucr zo!
Oc.c c_ eo c,c oecr.cc.
cOcu. - ouc.crcu: eOuru ec.cO -
r.c o-.O cOcO..u o,c,c oecr.cc .
cO c_ r.ecu ..cuc Ou uO - r.c
oecr.c o.c: :uuc r.O cr. Ou o,c,c
-.ec.ec.cc eo.
- uc oc. uc,cu rcOO : - occ.Du.
er.c. O,u .,c r.ec :uO. eu
rc...c.O cc. -c,.c .. - cc.uc
: - ourc.Oc cOcOc Oc.uc Ou o,c,c
oecr.cc.
- e.Ouuu j:. eO. ,cc. o,c e.c
o.c: ec.cce:uceo c r.cc. rc.O
ec.ccc, c.r..c ec.e.u Ocrcrc.c
r. j:. o.c: cc.u : ec.ccc,
r.u.rc. c.ccr (RAMS) :_uO.e:
rOcc uO ereccu cOcu occ c c_u
r.u :. uO,c ec.ccc, -..,u.O oO..O
cu - r.u.rc.c O,c. rc .,u.O
e:ceOcu - o.c. :_ uO. .,u.O :,rOu
o,c,c oecr.. erec.
144 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
o_r .ccrc Oo.r rc.r `
2011 2012 2013
rrcOr
r.orO
rO. ()
.e.u. 8.2 6.4 6.9
r-.rc..ucc 1.5 5.8 2.7
rc..uc 10.3 10.3 9.5
eO. 8.6 4.6 6.3
..uc - .e.u. oO..urc (`) 7.9 8.9 7.2
eO. crc ouc.cc (`) 4.2 4.0 -
c.r o.ec.:u (.e.u. `) 23.7 23.7
(w) ;djld,sl
orr r .c or - (VAT)
rc.rc croc
.u. ouc.cc ocucu c..
:.c ouc.cc (z`) ec. occ.
u: r: crc r_ o.c .c - cuec e.oe.u u: e-uec j:u rc o,c c..
:. eO.
.rcr Or.ro
,.c..._cr
2012(o) 2013 (o.)
: 24.39 18.10
u 344.88 297.30
oeurc o.:.c 935.13 1,051.90
oeurc c.ec..r c.. 1,690.77 1,758.50
ccu - e..Oc O.:u 495.11 569.90
-u: ec 5,036.96 5,149.10
ec.e:.c 310.99 225.40
c. : -. 363.77 342.70
c.cur O. 669.74 726.30
ecc_ 2,266.35 2,167.70
oeurc occ., c.. 2,922.12 3,011.80
cuc c :. crc. 2,356.01 2,325.70
cO.:u crc. 991.89 646.50
e..u,. O. 1,237.37 1,355.60
oeurc 4.51 5.60
o orrO 19,182.57 19,097.00
^w& ixfYda;
^wd& mqfrdal:k
145 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 unied
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 scal 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 identied 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 nancing 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. .|-
.rcr c.crc
Oo.c . o.ucuecu ` e
2012(o) 2013(o.)
c.ec..r c.. 15..6% 16.5%
oucc c.. 60.3% 60.0%
o.ec.:u c.. 23.9% 23.3%
^w& ixfYda;
^wd& mqfrdal:k
.rcr Or.ro cc oc Oo.rc
2012() 2013(.)
o.ucu O.u.r. (o,.e.. c.) 19,182.5 19,016.0
Oc.uc(`) (5.4) (0.9)
^w& ixfYda;
^wd& mqfrdal:k
co.- roc.r - cqc. cOrOr cr.o..r .<.
2013 (,crcOrr) 2014 (,crcOrr)
,c .cc,u c...c (.ccu) 45 46
e... Ou u.c.c .cc,u -c c...c (.ccu) 114 119
.c. c...c (:O,. ccu) 4,422 4,320
O.c rOu : c...c (.ccu) 165 170
ecO c...c (.ccu) 850 900
c c...c (.ccu) 2,400 2,500
^w& ixfYda;
^wd& mqfrdal:k
OO, cqc. roc.r - (OO, I,ccc r cqc. zcI+.c.z rO)
ccrO o,cc_
:O,. r . c.c. eo eu.r.Ou 5,722
:O,. r . c.c. eo r.Ou ce:c c.c. e eu.r.Ou 10,355
:O,. r . c.c. e r.Ou ce:c c.c. z eu.r.Ou 12,100
:O,. r . c.c. z r.Ou ce:c c.c. s! eu.r.Ou 16,610
:O,. r . c.c. s! r.Ou 20,000
co. - O.cc
.u. - oc.O.. c.. .r, o.O. :. cuc c
5.0% oc. uc c.. (e.c rc..uc j:. oO. ..Oe: o.cr..c)
15.0% occ., c.. (e.c rc..uc j:. .... ..Oe: o.cr..c)
30.0% uc c.. (e.c rc..uc j:. c. ..Oe: o.cr..c)
146 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
co.- O.cc (zcI+.c.z rO)
cOor _OocO
o,cc_
ec.Ou ,q r c, ocrr 1,110.00
e.cO u.c.c e. ...c 1,250.00
.u.c ` O, e... ...c (-c) (ec.. OccO) 130.00
.u.c ` e:. cO o e... ...c (-c) (ec.. OccO) 110.00
.u.c !` O, Ocu 898.00
O.c rOu :c (:.c OccO) 8.00
roc.r cc ...r - co.Oo oO O.cr cqc. - O.cc
crocorr ..r.Oc rc.rc (`)
!%# co.Oo r.o ccO_
uc ..c.Oc ooo o 85%
uc ..c.Oc ooo - eoo 85%
uc ..c.Oc eoo - zooo 85%
uc ..c.Oc zooo O, 114%
uc ..c.Oc +ooo O, 129%
!%%# co.Oo r.o cc_
uc ..c.Oc eoo o 114%
uc ..c.Oc eoo - zooo 129%
uc ..c.Oc zooo - zoo 143 %
uc ..c.Oc zoo O, 173%
!%%%# co.Oo r.o cocr .r
uc ..c.Oc ooo o 14%
uc ..c.Oc ooo - eoo 14%
uc ..c.Oc eoo - zooo 14%
uc ..c.Oc zooo O, 40%
uc ..c.Oc +ooo O, 57%
!%&# O,r oO
c.cu + - zo c 41%
c.cu + - zo ecO 41%
c.cu + o c 114%
c.cu + o ecO 85%
-ro cr_ cqc. Or roc.r - rc.r O.cc
ecO OccO c,. z.oo
c OccO c,. z.o
147 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 unied
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 scal 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 identied 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 nancing 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 c. .Or cr.Occ. c.Oo.r -
...u. ouc.cc 5.0%
o,.: rc..ucc j:. :u..c crc. :. o.cc er.O cu.c 2.5%
:.. u.c.uc j:. oO.. o.O. 2.0%
cc ocucu j:. o.ucu u:
_. _,-O _. c,OO cc _...c zcIz zcI!
c,.c.

2012 2013 cO,c 2014
,crcOrr .r
. r. -,rO 5,346 6,846 7,346
z. :.cr c re: -,rO 8,260 6,063 7,623
+. .::u -,rO 4,658 6,220 5,598
!. c.:. r :. o.ec.:u -,rO 25 50 20
. c.e.c Oc.u -,rO 500 500 500
e. r. cc Oc.u -,rO 18 2 40
. :.cr Oc.u -,rO 4 4 10
s. e. uc..u er.c.u c.O 7,200 12,000 10,000
. :.cr cr.. c.c oc. 4,200 2,300 3,500
o. . r. cr.. ..O 1,001 2,000 2,300
. . r. eOer.: 759 670 840
z. cc :. r,: r.cc..c 750 500 800
+. :.cr e.cdc ..c 502 500 800
!. .Ou ec.Oec._ :. .Ou eO. (. r.) .... - - 500
. u.r o.r.c 350 - 400
e. o.ec.:u ..c 200 - 300
. r. -u: O, .... 1,700 1,200 2,000
s. r. .... 75 80 75
. O..u c,cO.:u .... :.c 88 30 75
zo. . r. c,cO.:u ..O 5 42 30
z. c.:. :.. u.c.u .... 20 35 35
zz. c.:. :.. uc.c ..O - 30 25
z+. c.:. O ..O 50 150 250
z!. .c, r. - u.c :. dr:cc .. 42 35 45
z. r. r.ccr :ucc 47 25 60
ze. r. ec.ec. .... 40 40 40
z. ccucu c.cur .... 3 7 8
zs. r. eut .... 5 50 80
z. cru. r. o.cr.. .... 10 25 25
+o. . r. :.c r.cc..c 12 - 15
+. r. ec.e:.c .... 4 6 10
+z. r. u .... - - 500
++. c, O, .... 22 25 25
+!. er.O. O, .... 7 6 10
+. :.Oc O, .... 75 75 50
+e. rc,.,. O, .... 50 40 80
+. rge-..c.u O, .... 10 - -
+s. u..r O, .... 15 15 15
+. . r. ocucu .c cr.. ..O - 20 -
!o. c.:. O..c.cO ocrc oc. ..c,r. 10,708 8,053 6,856
o _. c. _...c 46,761 47,644 50,886

uQ,dY%h ( rdcH jHdmdr fomdr;fka;=j
148 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 renement 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 scal strategy of the Government
has been designed to reduce the budget decit 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 scal
management to further consolidate the decit reduction
path achieved in the recent past by reducing the decit
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 scal operations
with the reduction of the budget decit 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 scal decit 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
decit. Consequently, revenue decit 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 decit 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 scal 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 scal consolidation in
the medium term.
The medium term scal policy framework envisages
phasing out the budget decit 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 decit 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 scal consolidation process. In line with
this, comprehensive tax reforms have been introduced
in the 2011 Budget to simplify and broadbase the
countrys tax system and to make it more investment-
friendly. The scal 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 nancial outlook.
The continued uncertainties and risks in the Euro
Zone, macroeconomic imbalances in many countries,
risks from aggressive scal 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
scal framework is given in Table 1.
Medium Term Fiscal Strategy
Overview
2014
... .,. :_..:.~ ..c. .|-
- r_ .co
c,.c.
2012 2013
cO,c
2014
o,ce:uc .c
c:ec e..u,. : uO. .c - r 582 665 1,069
c:ec r,,Ou ,e-u o.c: 758 974 1,606
: : oeurc -r 35 35 40
c.e.c O, ...: Ou ,e-u r- r 771 1,021 1,678
oeurc 50 240 142
o - r_ .co 2,197 2,935 4,535

..cr cc crO
c,.c.
2012 2013
cO,c
2014
o,ce:uc .c
c:ec ...c u rcu -u eO. j:. ocr: 308 300 375
..u -cc, o. : cO ccO,c.Oc j:. ..c 6,198 6,423 7,742
c.. : oeurc ..c 263 165 300
e..Oc c. cuc cOec ..c : oeurc ,-: 6,578 6,800 7,500
oeurc . ...cue.u Ou ,-: 12,672 22,422 31,147
orrO 26,019 36,110 47,064

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