Easy Prey

Sri Lanka is just recovering from a bad bout of inflation. But inflation actually helps the Treasury balance its books, by boosting nominal revenues, and imposing cuts in wages and other expenditure in real terms. Sri Lanka is just recovering from a bad bout of inflation. But inflation actually helps the Treasury balance its books, by boosting nominal revenues, and imposing cuts in wages and other expenditure in real terms. According to the provisional data released by the Finance Ministry, the Treasury is hoping to raise Rs. 385 billion this year.

This is just Rs. 5 billion short of the original budget target.

But in real terms the revenue target of 16.

4 percent of GDP could not be met.

The government hoped to increase the tax take to 17.1 percent of GDP.

Though the government met the revenue target in real terms, the increase in real terms was 1.1 percent, which is lower than the 1.6 percent expected in the original budget.

This gap between real and nominal tax revenues can be partly explained by the effect of inflation in the economy.

Tax revenues raises inflation because, GST, import duties and other indirect taxes automatically increase when prices rise.

Income taxes go up