Sri Lankan President outlines economic recovery plans and social welfare initiatives

 

Sri Lankan President Anura Kumara Dissanayake addressed Parliament on December 18, 2024 presenting key achievements and future strategies for economic recovery, debt restructuring, tax reforms and social welfare programs.

The President emphasized the government’s commitment to achieving economic resilience while addressing pressing challenges.

Debt Restructuring and Economic Stability

Sri Lanka has successfully restructured USD 12.55 billion in debt, including USD 1.7 billion of defaulted debt. Of this, USD 11.5 billion was borrowed during the 2015–2019 administration. The President rejected fears of potential bankruptcy by 2028, assuring that foreign exchange reserves are projected to rise to USD 15.1 billion by that year.

The second IMF review has been completed, releasing the second tranche of funds, while discussions on the third review commenced on November 16, 2024. These efforts were delayed by the previous administration, according to the President.

Tax Reforms and Adjustments

The government has introduced several tax measures to boost economic growth and provide relief:

1. Property Tax: A new tax based on imputed income will be implemented in 2025, as part of the second IMF review agreements.
2. Service Export Tax: Reduced from 30% to 15%.
3. Special Commodity Levy: To be replaced with VAT by January 2025.
4. Surcharge VAT: Scheduled for elimination by April 2025, to address cash flow and VAT refund delays for businesses.
5. Personal Income Tax (PIT):
   • The first tax band rate (6%) will apply to incomes up to LKR 1 million annually, up from LKR 600,000.
   • Pay As You Earn (PAYE) Tax Reforms:
     • Tax-free monthly income threshold increased from LKR 100,000 to LKR 150,000.
     • Graduated tax exemptions for higher income levels:
       • LKR 200,000 per month: 71% exemption.
       • LKR 250,000 per month: 61% exemption.
       • LKR 300,000 per month: 47% exemption.
       • LKR 350,000 per month: 25.5% exemption.

Social Welfare Enhancements

The government has introduced new welfare programs to support vulnerable groups:

• Allowance for Underprivileged Students: A monthly allowance of LKR 6,000 for financially struggling schoolchildren.
• Aswesuma Program: Adjustments include extended benefits and solutions to eligibility issues such as banking and identification concerns.
• Support for Pensioners and Farmers: Pension allowances have been increased by LKR 3,000, and fertilizer subsidies raised to LKR 25,000.
• Nutrition Improvements: Yogurt and other dairy products are now exempt from VAT to enhance child nutrition.

Reopening of Vehicle Imports

The phased reopening of vehicle imports aims to revitalize the market without disrupting the economy:

• Passenger buses and special-purpose vehicles: Imports resumed on December 14, 2024.
• Private vehicles: Import permissions will start on February 1, 2025.

Support for SMEs and Loan Restructuring

To support Small and Medium-sized Enterprises (SMEs) and individuals with loans:

• The grace period for the ‘Parate’ law has been extended to March 31, 2025.
• Loan restructuring deadlines vary based on the size of the loan:
  • Loans under LKR 25 million: Deadline extended to December 31, 2024.
  • Loans between LKR 25 million and LKR 50 million: Deadline extended to June 2025.

Budget and Future Goals

Discussions on the budget and amendments to the Aswesuma Act will conclude by March 21, 2025. The President reaffirmed the government’s dedication to stabilizing the economy, addressing social inequalities and promoting equitable development.

President Dissanayake’s address underscored a comprehensive approach to fostering economic stability, advancing social welfare and ensuring a resilient future for Sri Lanka.