State Minister of Finance Shehan Semasinghe emphasized that if the promises made by opposition candidates were implemented, the country would immediately lose IMF programs. He also warned that agreements with foreign debt holders and private bondholders would be jeopardized, leading to a serious economic crisis.
State Minister Semasinghe made these remarks during a press conference at President Ranil Wickremesinghe’s political office in Flower Road, Colombo, today (29).
He noted that discussions with the IMF are on-going regarding amendments to Pay As You Earn (PAYE) taxes to provide relief to the public. He expects that tax reductions will be implemented by April 2025, following the finalization of the relevant agreements.
State Minister of Finance, Shehan Semasinghe, emphasized that any violation of the International Monetary Fund (IMF) agreements would immediately jeopardize the country’s access to IMF programs. He warned that if the promises made by opposition candidates were to be implemented, it could lead to the loss of the IMF program.
Minister Semasinghe further cautioned that such actions could put the country at risk of a serious crisis by undermining agreements with foreign creditors and private bondholders. He made these remarks during a press conference held yesterday (29) at President Ranil Wickremesinghe’s political office in Flower Road, Colombo.
The State Minister also mentioned that he is currently in discussions with the IMF to revise the tax policies, aiming to provide relief to citizens by adjusting income taxes. The goal is to implement these tax reductions by April 2025, following the finalization of the agreement.
However, I must responsibly mention that if the opposition’s promises are implemented, rather than following President Ranil Wickremesinghe’s program, this country will lose the ongoing program with the IMF at the moment of its implementation. The reason for this is that we must keep the budget deficit at 5.2% of GDP. However, if the opposition’s promises are fulfilled, the budget deficit would balloon to 11.9% of GDP. Additionally, maintaining a positive primary account balance of 2.3% is a key goal of our program. Yet, if the opposition’s promises are enacted, this balance would plummet from a positive 2.3% to a negative 4.3%, making it impossible to continue the IMF program.
As a result, our country would lose the program with the IMF, along with the agreements we’ve made with creditors and private bondholders. It is, therefore, irresponsible to make promises without considering these technical realities. Moreover, it’s important to understand that decisions in negotiations with organizations like the IMF cannot be made overnight; they require time and careful deliberation.
The President has also prioritized providing concessions to private sector taxpayers. In this regard, we initiated negotiations with the IMF in September 2023. As a result, the current income tax exemption limit of Rs. 1.2 million per year will remain unchanged, and the Rs. 500,000 rupee threshold will be increased to Rs. 720,000. The implementation of these tax reductions is expected to begin in April 2025.
A common question we face is how the government plans to offset the lost revenue from these tax reductions. We have reached an agreement with the IMF to cover this shortfall, ensuring that there will be no additional burden on existing taxes or the introduction of new taxes. This tax reform is being implemented gradually and without repetition, making it a sustainable adjustment.
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