The current crisis has roots in tax cuts

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Tax Cuts

Financial analysts point out that the ongoing financial crisis and food and fuel shortages have their roots in wrong financial planning slash taxes soon after coming into power has a critical impact on the current crisis.

The value-added tax was cut by almost half and many other tax deductions were announced by Finance minister Mahinda Rajapaksha.

The Central Bank was not consulted on these tax cuts said P. Nandalal Weerasinghe, who served as Senior Deputy Governor at the time when tax cuts were implemented.

“The tax cuts just after the elections came as a surprise and there was not any kind of a consultative process, said Weerasinha.

The former governor of the Central Bank Professor, W D Laxuman has also pointed out that these tax cuts were a mistake as they increased the fiscal deficit.

The tax cuts were made to lower commodity prices and boost the economy. However, in defense of the tax-cutting strategy sources close to the government say that due to the Corona pandemic the desired impact of tax cuts could not be reaped. The foreign exchange reserves have shrunk almost 70% within the last two years.

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