November 8, 2017 / 11:30 AM / in 11 days

Sri Lanka's finmin unveils tax concessions ahead of budget

* Finance minister announces monthly $9.8 mln tax cut

* Extreme weather to result in upward budget deficit revision

* Says budget will focus on economic growth

* Govt has already passed tough tax reforms

By Shihar Aneez

COLOMBO, Nov 8 (Reuters) - Sri Lanka’s Finance Minister Mangala Samaraweera announced tax concessions worth a monthly 1.5 billion rupees ($9.8 million), a day ahead of presenting the 2018 budget, which is expected to focus on exports and fiscal consolidation.

The island nation’s coalition government will seek to stoke exports and employment through support for the small business sector in its 2018 budget, a move that is likely to keep Sri Lanka’s fragile public finances under pressure.

Samaraweera said the government had decided to reduce taxes on some essential food commodities and forego a monthly 1.5 billion rupees in revenue.

Samaraweera cited the wisdom of a Chinese proverb about teaching people life skills.

“We will be following the Chinese philosophy that it is worth giving a hungry man a fishing rod than a fish to empower the country’s youth. However, we need to give some instant handouts as well,” Samaraweera told reporters.

“We need to kick start the economy, taking it to the heights it deserves,” he said when asked about Thursday’s budget.

Despite the tax concession, which analysts had expected as the government is preparing for local elections next year, Samaraweera said the revenue target will not change as there will be some adjustments.

The government has already passed some tough tax reforms, most of which take effect in April next year. Sri Lanka faced a debt and balance-of-payments crisis early last year before the International Monetary Fund came to the rescue with a $1.5 billion loan.

The government has planned to bring down the budget deficit to 4.3 percent of gross domestic product (GDP) next year from this year’s 4.6 percent target, a condition of the IMF loan.

However, State Finance Minister Eran Wickramaratne said there could be some upward adjustments to this year’s budget deficit target due to bad weather.

“We are on target except there could be a 0.3-0.4 percent adjustment due to the floods and drought this year,” Wickramaratne told Reuters. “The total revenue for the year will have a little change.”

Sri Lanka suffered both floods and drought in different parts of the country this year and the central bank has said extreme weather conditions have affected economic growth.

Despite populist pressures, analysts expect Samaraweera not to deviate from the government’s medium-term macroeconomic framework and for policies to remain consistent with the IMF’s loan conditions including tough reforms for state-owned enterprises.

$1 = 153.3000 Sri Lankan rupees Editing by Jacqueline Wong

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