The International Monetary Fund(IMF) is not against tax exemptions, but has advocated for rationalising some of the tax exemptions in Sri Lanka, as exemptions remain as one way of attracting investments, IMF Mission Chief for Sri Lanka Evan Papageorgiou said.

In an interview with the Advocata Institute, he said that Sri Lankan authorities lowered or eliminated certain Value Added Tax (VAT) exemptions on many goods during the first two years of the IMF programme.

He said that the tax administration is also improving in many regards, and the VAT compliance programme is doing well and continues to show ongoing gains. He added that tax collections have benefited from good imports, especially from the import of vehicles.

“But there are still many exemptions that remain, some tax exemptions of Port City and the SDP Act, this is something that we have looked carefully including in this review. This is something that we have had a longstanding engagement with the authorities,” he said.

He stressed that there are two structural benchmarks in the programme, one for Port City and one for SDP, on the proper way of giving tax exemptions. “We have advocated for rationalising some of the exemptions. We’re not against exemptions. I should be absolutely clear,” he said, adding that exemptions have a role to play in a well-designed system, especially in Sri Lanka.

But he added that tax exemptions should not be the only way Sri Lanka wants to use it to do policy. The tax expenditure statement released by the Finance Ministry in June showed that exemptions on Board of Investment (BOI) companies and Port City, given through Sri Lanka Customs, amounted to Rs 120.7 billion by the end of May.