May 24, Colombo: Sri Lanka's Minister of Finance and Mass Media, Mangala Samaraweera says that he expects to reduce the 15% Value-Added Tax (VAT) rate to 12.5% by the year 2020.
Minister Samaraweera noted that since all the people are indirectly paying taxes, he hopes to reduce the VAT by 2.5% by 2020 to free the people from the burden of indirect taxes.
Minister of Finance made this disclosure at an event held at the Finance Ministry today to hand over letters of appointment to 68 newly recruited Assistant Superintendents of Customs.
The 68 new Custom officers have been selected after an extensive selection process out of 227 candidates who passed a competitive examination, which was taken by over 10,000 applicants.
"Unlike in the past, there was no political intervention and the new recruits were selected purely on merit," the Minister noted.
Speaking at the occasion, the Finance Minister said the countries such as Thailand, Korea and Malaysia that were behind Sri Lanka 70 years ago are now ahead in economic development.
"In the past our people used to call shanties "Korea". Today Korea is developed to the point that our young people are looking for jobs in that country," he remarked.
Sri Lanka however has become a country divided by racism, religious and political differences, he said.
"When Singapore's first Prime Minister Lee Kwan Yew published his life story, about ten pages have been allocated for Sri Lanka. He noted that when gaining independence Sri Lanka is the most exemplary country in the Commonwealth. The Peradeniya University was seventh in the world's ten best universities. The best police service, state service in Asia were in Sri Lanka. On the day when Sri Lanka received Independence, the Times of England stated that soon Sri Lanka would be Switzerland of Asia. The reason was that Sri Lanka is an island full of human and natural resources."
"However, after Independence, Sri Lanka walked not only towards communalism, religionism, and caste discrimination but also towards the political division. The result was two youth insurrections and a protracted civil war. Those who died in the South or North were the young people who could have been productive to the country," the Minister pointed out.
"Although, at the end of the war after 30 years, some attempted to take the country towards dictatorship on the guise of war instead of entering the road to peace, that attempt failed in 2015," Minister Samaraweera said.
Today Sri Lanka is moving forward on the three pillars of democracy, reconciliation and development and a seven star country of democracy, he said.
"An environment has been created in the country where it is possible to criticize even the President and the Prime Minister. Journalists have the freedom to run their pens free. No white vans are coming after them. University students protest for anything. When the Prime Minister has to go before a commission he did not evade it. For the first time since 1980 two ministers resigned," the Minister recalled.
"What all these remind is that Sri Lanka has a democracy comparable to the West," he emphasized.
"Reconciliation is a necessary factor in the development of the country. That is why an environment has been created for the Sinhalese, Tamil, Muslim, Burgher, Malay, and others to coexist. However, there are still many different ethnic ghosts such as Sinhalese blood, lion blood and Muslim blood. But they should never be allowed to turn back the country," Minister Samaraweera stressed.
"In 2015 we were given a country with a debilitating debt. But by the end of December 2017, we were able to record a surplus of the primary account after sixty years. We recorded the highest exports in history last year. We have received the highest amount of foreign investment in history. We recorded the lowest unemployment rate after 13 years. All of this was done with a huge debt burden. This year alone we have to pay Rs. 2.845 trillion. That is more than 90% of our income and 63% of this money was to pay for loans taken before 2015," the Minister pointed out.
He said the situation will be worse next years since the loan amount to be paid for the next year is Rs. 4.285 trillion and 77% of these loans were obtained before 2015. The total loans needed to be paid by 2020 is Rs. 3.768 trillion and 78% of the loans were taken before 2015.
He pointed out that the revenues need to be increased to pay off these loans and the new Inland Revenue Act was introduced as a means. As a result, 46,000 new tax files were opened last month alone.
Minister Samaraweera explained that 82% of country's income is from indirect taxes and income from direct taxes is at a low of 18%.
"Indirect taxes are paid by poor people. The money they pay for day-to-day consumer goods become Indirect taxes. It is not fair that the poor consumer pays the same amount of Indirect taxes as the one who comes in a Benz. This is a very unfair situation for a country. Accordingly, the government's objective is to reduce the ratio of indirect to direct taxes to 40:60 by 2020," he said.
"My expectation is that by 2020 the VAT should be lowered at least by 2.5%."
Speaking about the Customs Department, the Finance Minister said the Customs is a big revenue stream. However, there is corruption in the department comparable to the income receives and the loss of income to the country is equal to the current revenues, he said adding that the need for a new Customs Act is growing.
The government's aim is to present a new Customs act to parliament before the next budget, he said.
Secretary to the Ministry of Finance and Mass Media Dr. RHS Samaratunga, Deputy Secretaries to the Treasury Chandra Ekanayake, A.R. Deshapriya, Director General of Customs PSM Charles and the parents of the new recruits were also present at the occasion.