The Hon. (Dr.) Harsha de Silva

¶ 01 Hon. Chairman, on behalf of the Opposition, I was given the opening speech slot. We highlighted the vast gap between what this Government promised before coming to power and what it is implementing now. Anyone can ask ChatGPT to draft a speech; but one must understand and implement it meaningfully. In recent days we have seen contradictory positions; I will address those.

¶ 02 Today we discuss the Finance Ministry. So far we debated how much is spent on education, health, sports, etc., which is good. But the difference today is this: where does the revenue come from to fund spending? We expect the Government to finally speak on revenue after a month of talking only about expenditure. Another problem is that our Appropriation Bill and Budget debates have almost no substantive deliberation on borrowings. It just states “we need to borrow this much.”

¶ 03 I recall moving a case in the Supreme Court, which held that the Government must inform Parliament before borrowing. But it did not prescribe consequences if not done, given practicalities. Then, in Opposition, you condemned borrowings as “rogue debt,” demanded a debt audit, called them “odious.” But look at how much you borrowed since taking office. We need to reduce the quantum of borrowing and have a real discussion on what we borrow for. Our Constitution and processes do not give space for this. Nevertheless, today we must discuss revenue. If the Government is ready to table the ISB agreement it reached, we welcome it. You promised to change it by 105 percent; nothing changed. When the IMF came after you took office, within minutes you accepted to proceed with the Ranil Wickremesinghe Government’s debt restructuring as is. There is not even a dollar’s difference.

¶ 04 Please table the ISB deal you signed if you can. Second, we have reached bilateral agreements with Japan, China, Paris Club and non-Paris Club. The Chinese Ambassador has said China incurs a US$ 7 billion loss due to Sri Lanka’s restructuring—based on trust in Sri Lanka. We are grateful; India too helped. Now, those bilaterals include clawback or comparability of treatment clauses. If macro-linked bonds give creditors benefits when our growth exceeds benchmarks, others will demand similar treatment. We in SJB proposed that a comparability or clawback protection be extended to local stakeholders like the EPF too. In domestic restructuring, the real blow fell on working people. We hoped at least someone on the Government benches would acknowledge our proposal. None did.

¶ 05 We must talk not only about expenditure, but revenues and debt with technical rigor, and embed such disciplines in any new Constitution. Long ago, when Bandula Gunawardana and others were in Government, in committee we proposed regular Parliamentary debt debates. Today, let us talk revenue.

¶ 06 On 9 March, IMF MD Kristalina Georgieva told the President: “My very first message to you, Mr. President, is bravo. Congratulations for what you have achieved.” We do not argue to exit the IMF. In fact, we called for IMF engagement early in 2020.

¶ 07 But there is a point: you are implementing, often exactly, the Ranil Wickremesinghe programme. You say one thing; do another. On cigarettes: the IPS formula links excise to inflation (i), growth (g), and a constant (c). The implementation deviated: affordability remained around 67.8 percent for a new low-priced brand, below the 75 percent benchmark, causing brand-switching to lower-tax tiers and revenue loss. Verité and IPS analyses show that correct calibration, especially on the most-sold brand, could have yielded Rs. 9.4 billion—more than the Rs. 6.8 billion projected from a new 15 percent tax on export services. I table analyses showing excise misalignment across JP Gold Leaf, JP Gold Pro, Capstan, etc.; the corrected specific rates differ significantly from imposed rates.

¶ 08 On casinos: collection rose with new licences, but effective capture is weak. Average daily Sri Lankan patronage per casino is just 17 persons; tinkering with entrance levies from US$50 to US$100 yields trivial sums, while large leakages persist, especially with unregulated online casinos that pay virtually no tax. Appoint the Casino Regulator and enforce compliance.

¶ 09 On VAT and SCL: you claimed foods would not bear added VAT, yet SCL increases were approved on rice, dry fish, onions, mung beans, etc. On digital services VAT at 18 percent from 1 April for Google, Airbnb, Booking.com, Meta: platforms have signaled that a few weeks’ lead time is unworkable; some have sought up to a year for system changes. Uber has litigated. We hear you may defer implementation to October. Policy should be announced with proper notice.

¶ 10 On vehicles: you plan to lift the import ban and collect around Rs. 340 billion plus Rs. 68 billion via a 30 percent import duty—over Rs. 400 billion total. Based on average CIF of US$ 20,000, you would need roughly 2,000 vehicles per month; with Ministers hinting at future tax reductions, market participants will wait. If this target is not feasible, identify alternatives now.

¶ 11 On SVAT: while IMF has views, outright removal harms exporters and deemed exporters (backward linkages). Move to a properly digitized credit/refund system first; until then, retain effective suspension for exporters and deemed exporters.

¶ 12 On WHT interest: increasing from 5 to 10 percent with a declaration-based non-withholding for those under Rs. 1.8 million is fine in principle, but requires legal basis and clear regulations. Banks cannot act on mere letters; Parliament must legislate.

¶ 13 I table the Government’s 11 February letter to Ms. Georgieva, signed by the Acting Minister of Finance, stating “implementation has been strong,” semi-annual reviews will monitor, and outlining 2025 revenue measures: 15 percent corporate income tax (CIT) on export services yielding Rs. 6.3–6.8 billion, raising CIT on betting/gaming, tobacco and liquor from 40 to 45 percent, introducing VAT on digital services, lifting the vehicle import ban with duties, and improving VAT compliance (including ending SVAT). However, there is confusion: you publicly said “individuals” in online service exports will pay 15 percent, yet the IMF letter referred to CIT; individuals are subject to PIT, not CIT. Applying 15 percent to individuals while PIT goes up to 36 percent is an oxymoron; please clarify the design.

¶ 14 Further, IMF Country Report 25/056 states: - A property database has been initiated (about 5,000 properties assessed), a precursor to a property-related tax. - Cost-reflective energy pricing will be maintained with formula-based quarterly adjustments (Jan 1, Apr 1, Jul 1, Oct 1), with surcharges between revisions if losses emerge; tariffs will be raised as soon as losses reappear.

¶ 15 On wages: wage increases (around Rs. 51 billion fiscal impact) are acknowledged; all parties have supported this. But policy coherence is needed on public service size. Statements about reducing central and provincial staff from 1.5 million to 750,000 raise questions on service delivery. Pensions: we spend about Rs. 450 billion on non-contributory pensions; globally such high replacement rates without contributions are unsustainable. A contributory reform must be discussed honestly.

¶ 16 Finally, on tax base: the promise to raise the annual PIT threshold from Rs. 1.2 million to Rs. 2.4 million was not met; it moved only to Rs. 1.5 million, shrinking rather than broadening the base. Current PAYE payers are roughly 350,000; voluntary filers about 150,000; total direct taxpayers about 800,000, now reduced by around 200,000 due to threshold changes. IRD’s use of technology—emails/SMS reminders—is good; continue strengthening compliance.

¶ 17 My purpose is to put on record the Government’s revenue measures and their implications, beyond paper promises.