New tax system is of paramount importance
A revenue-generating tax system has to be put in place for sustainable development but cannot be done overnight. “We need a clear medium plan to collect 15 percent of the revenue. There had been a steady decline of revenue during the past 25 years. In the 90’s we used to collect around 19-20 percent and during the pandemic it came down to 12 percent and last year it came below 10 percent and this year too will be the same,” said former Governor of the Central Bank Indrajit Coomaraswamy, speaking at a webinar held in Colombo on the topic: “COVID-19 and the economy: Which Way Now For Sri Lanka”.
Referring to exports of goods and services, he said it was 29 percent of the GDP in 2000 that has come down to around 20-21 percent due to an anti-export bias in policies coupled with protectionism which has doubled. This excluded Sri Lanka from penetrating the global supply chain network. The focus should be on macro-economic policies to revitalise the economy. Referring to China and Singapore, he said FDIs have played a pivotal role in bringing in revenue. But where Sri Lanka is concerned tax concessions does not come on the top of the agenda of investors, but other areas that matters such as macroeconomic stability, political stability and creating an environment of doing business in the country and a host of other issues come into play.
He said before the pandemic, the Sri Lanka economy had been subject to macroeconomic stress for decades following the post -independence period. The main stress was due to the budgetary operations that had been going on for many years. But during the pandemic Sri Lanka was one of the vulnerable countries with an unsustainable budgetary provision and an unsustainable current account.
Dr. Ganeshan Wignaraja, Senior Research Associate, Overseas Development Institute London, said Sri Lanka is a small economy with a narrow production base with commodities like garments for exports etc. A low growth has been predicted for this year as exports fell a bit due to the pandemic. Jobs of women have been affected significantly. Tourism and garments too was affected as well. During the pandemic Sri Lanka’s fiscal stimulus was less than one percent of the GDP.
Professor of Economics, University of Peradeniya Dr. Dileni Gunewardena said poverty is much higher with several casual workers, informal workers, self- employed and small and medium entrepreneurs who did not have means to protect themselves from shocks following the pandemic. What is driving decision-making? What is the objective? It is to achieve self- sufficiency or some other kind of political agenda? she asked. Referring to gender, she said women’s participation from employment dwindled drastically as greater time of women’s care goes into unpaid work of looking after their children.