The investment advice service, Moody's welcomed the New Inland Revenue Act gazetted by the Sri Lankan government, stating it would contribute to improving government revenues as well as paving the way for the third tranche of the International Monetary Fund loan.
Earlier this year, IMF officials indicated the release of the third tranche would be "contingent on the gazetting of the new Inland Revenue Act bill", Moody's said in a statement published June 30, whilst also highlighting that Sri Lanka's very low level of government revenues was "a key constraint on the sovereign credit profile."
"Sri Lanka's current Inland Revenue Act is a complicated tax scheme that hinders the transparency of taxed for potential investors in fixed and financial assets, limits the effectiveness of local tax officials' supervision efforts, and contributes to a very low tax-to-GDP ration, in particular the current Act does not efficiently deal with modern business structures and commercial transactions, including cross-border transactions."
"The implementation of revenue reforms that foster long-term fiscal consolidation will be critical to shoring up Sri Lanka's credit profile. The country's large debt burden and weak debt affordability weigh significantly on its creditworthiness. The government's debt burden of 79.3% of GDP in 2016 was higer than the median of 53% for B-rated sovereigns. The debt burden has risen from a low of 68.2% of GDP in 2012. With norminal GDP growth to be slower in coming years than over the past decade, persistent and sizeable fiscal deficits would further increase Sri Lanka's debt stock."