Is Sri Lanka Addicted to Missing Revenue Targets?

Abstract

It is all too familiar that Sri Lanka has a problem in meeting its budgeted revenue targets. Recently, a government member of parliament (MP) who voted in favour of the budget last year, said that the tax increases that were required to achieve the revenue targeted for 2023 were never practical. This was to explain why government revenue was hugely off target this year. The multiple flaws in his understanding and argument were explained in a fact check published in the Daily Mirror (https://www.dailymirror.lk/slide-1/MP-Godahewa-off-target-on-problem-with-tax-targets/329 269978). The fact check shows why the MP’s understanding of what is practically feasible is not correct. But the fact that Sri Lanka would miss the revenue targets by a mile was easy to see for those who scrutinised the budget projections. In December last year (2022), Verité Research hosted its biannual Public Finance Lounge, to which high level stakeholders are invited. One of the presentations was an analytical demonstration of why revenue targets set out in the budget were likely to fall short by about 11%. The recent press release by the International Monetary Fund (IMF) says that revenue is now expected to fall short by about 15%. The point is that this shortfall in revenue in 2023 is not mysterious. Much of it was foreseeable even as the budget was being presented in November 2022. But delving into this issue raises not just the question of poor understanding among members of parliament on why targets are not achieved, but another deeper and darker question: Is Sri Lanka structurally addicted to missing the revenue targets in its budgets?