The Government of Sri Lanka will not be able to meet tax revenue targets in 2024 despite the Value Added Tax (VAT) hike as reduction in consumption is expected eventually leading to an economic contraction, Ceylon Chamber of Commerce (CCC) Chairman Duminda Hulangamuwa said.

Speaking to TV Derana yesterday (2), he said that the VAT should have been kept at 15% while removing the VAT exemptions as an 18% VAT is high which will reduce the consumption volumes of people and keep the tax collection low.

“In these circumstances, huge growth in the economy cannot happen but we can bring some stability to the economy through these measures. If we can achieve some stability, we can control the macro fundamentals such as inflation and interest rates then both foreign and local investors will see that the economy is stable and that they can invest again,” he explained.

However, he noted that it will take 2-3 years for the investor confidence in Sri Lanka to return as before.

Moreover, he said that it will be difficult for the Government to achieve their revenue targets as there will be a certainty in contraction in the economy due to the VAT hike and removal of VAT exemptions while the income levels of the people have remained unchanged.

“I think considering the possible contraction in the economy the Government has projected an overall economic growth of about 2.5% in 2024,” he said.

Speaking to reporters on Monday (1), State Minister of Finance Shehan Semasinghe said that they expect 2% growth in the economy in 2024 while in a special telecast on Monday night, Central Bank Governor Dr. Nandalal Weerasinghe said that he expects a 3% growth in 2024.

Also, Semasinghe said that the Government has revised the tax revenue target for 2024 to Rs. 2,752 billion from the original forecast of Rs. 2,596 billion through budget 2024.

Hulangamuwa said that the Government has only two options for bridging the gap between revenue and expenditure; maintaining the taxes as it was last year and borrowing from the market to fund the shortfall which will increase the interest rates due to demand or increasing the taxes, and reduce the market borrowing keeping the interest rates down.

He said both options will, however, have an impact on inflation.