COLOMBO – A controversial imputed tax on housing promoted by the International Monetary Fund (IMF), with rents on second houses already taxed will be deferred, a senior advisor to Sri Lanka President Anura Kumara Dissanayake has said.

He said the government was also working on a policy of targeted subsidies rather than indiscriminate tax reduction.

The imputed rental tax, which was to have been paid on owner-occupied houses and later adjusted to a second house, has been controversial.

There have been warnings that such a tax may discourage the expansion of housing stock where high taxes are already paid on building materials.

“That will be deferred,” Duminda Hulangamuwa, advisor to the president told a talk show hosted by a private television channel..

The tax was expected to bring around 0.2% of revenue.

The Head of the Economic Council of the National People’s Power (NPP), Anil Jayantha pointed out before the elections that imputed income was not real income.

The NPP had also wanted some value-added taxes to be brought down.

Under the IMF program revenue targets have to be met.

“So, they have given an overall target for us to meet, and within that target, if you shift one revenue item and we have a reduction in one, we need to compensate from the revenue,” he said, adding that it has to be done, and the government has to be responsible.

He cited the inability to reduce VAT from 18 to 12% and increase income tax from 30 to 60% as examples of what cannot be done.

Taxes should not discourage investment, he said.

“What the IMF is saying is that don’t use taxation as a means or a measure to give concessions,” Hulangamula explained, noting that while taxes covered everyone, the IMF had acknowledged that there is a vulnerable sector and this sector needs to come under a targeted subsidy scheme.

Highlighting how reducing the price of petrol or electricity charges across the board benefits everyone equally from the person driving a Mercedes to the person driving a three-wheeler, as an example, he said the subsidies should be targeted only for those who cannot afford to pay.

“So, for example, if you want to give a fuel subsidy for fishermen for their fishing trawlers or if you want to give a subsidy to schoolchildren, you target them,” he said, noting that the president has announced a program to provide free books for deserving schoolchildren from selected schools and that an allocation for that had already been made from the budget this year.

-economynext.com