With the end of the first half of the current fiscal year, the government has failed to meet the revenue target. The worrying sign is, unlike in past years, the government's overall revenue collection has decreased significantly in this fiscal compared to the last fiscal year. The revenue administration has been struggling to meet the revenue target from the first months of the current fiscal. According to the Financial Comptroller General Office (FCGO), the government's overall revenue collection (tax and non-tax) stood at Rs 458.98 billion in the first six months of FY 2022/23 compared to Rs 542 billion in the corresponding period of FY 2021/22. In the review period, the tax revenue collection totaled Rs 405.26 billion, a sharp drop from Rs 493.92 billion during the same period of the last fiscal year.

The government had targeted to collect Rs 651.62 billion during the first six months of the current fiscal year. However, the target got missed by 30 percent.

Though revenue administration officials blame higher revenue targets and import restrictions as major reasons behind decreased revenue collection, economists point out economic mismanagements under the former Finance Minister Janardan Sharma as one of the key reasons behind sluggish revenue collection. According to a former finance secretary, Sharma filled the key position of the Finance Ministry with inexperienced and incompetent administrators which resulted in a leakage of revenue. “The revenue target itself was not scientific given that the import restrictions were already in place when the federal budget was announced,” he said. Amid fear that the country would move in the direction of Sri Lanka due to depleting foreign exchange reserves, the government and the central bank introduced a series of restrictive measures to discourage imports - from import restrictions to cash margin provisions on opening letters of credit (LCs). The central bank made it mandatory for the importers to deposit a cash margin of up to 100 percent to open LC for importing nearly 50 types of goods; this policy arrangement is still in place. The policy was first introduced for 10 types of goods in December 2021 and was expanded to more goods in February 2022. In April 2022, the government imposed import restrictions on 10 types of goods including automobiles, alcohol, and expensive mobile phones among others. Though the government lifted the import restrictions in mid-December 2022, the impact of the policy is still visible in the government's revenue collection. On the one hand, import restrictions caused a sharp reduction in revenue collection, on the other hand, the shortage of loanable funds in the banking system contributed to a slowdown in the country's economy. As a result of import control and reduced economic activities, both customs and inland revenues have slumped in this fiscal. The Department of Customs (DoC) reported a deficit of more than Rs 120 billion in its revenue collection target while the Inland Revenue Department (IRD) has also reported collection of less than the targeted revenue. IRD aimed to collect Rs 106 billion in revenue in Poush (mid-December to mid-January) but managed to collect only Rs 71 billion. IRD's revenue collection fell short of 21 percent of the target in the first six months. The department had set a target of collecting Rs 281 billion in revenue by the end of January but only collected Rs 222 billion. IRD collected Rs 225 billion in the first six-month of FY 2021/22. As a result, the government revenue collection has been barely sufficient even to meet recurrent expenditure with the government’s revenue collection. The government's recurrent expenditure stood at Rs 455 billion against the total revenue collection of Rs 458.98 billion, according to FCGO. Capital expenditure remains dismal  In the first six months of the current fiscal year, the government's administrative expenditure surged while development expenditure continued to stay sluggish. The FCGO data shows recurrent expenditure stood at 38.46 percent of the allocated recurrent budget which was 31 percent in the corresponding period of the last fiscal year. Though the government introduced a guideline on austerity measures to control administrative expenditure, it appears that there has been little progress in this regard with a sharp rise in recurrent expenditure. Similarly, capital expenditure stood at 14.05 percent and expenditure of the budget under financial management stood at 29.44 percent in the review period. The latest statistics indicate a slight improvement compared to 13.44 percent capital expenditure and 26.12 percent expenditure of budget under financial management during the same period of the last fiscal year. Officials said with the government struggling to collect revenue, it has also been unable to make timely payments to the contractors for the work they completed. The ministries having a huge budget for development projects are reporting that they are not getting an extra budget from the Finance Ministry to expedite the development projects with the latter showing a shortage of resources. The contractors say they are not being paid timely by the government for the works that have been completed affecting their ability to expedite works of the development projects. “When construction activities slump, the government doesn't get taxes including Value Added Tax from the sector,” said a contractor, adding, "Construction activities are an important source of VAT for the government.” Data Target vs Collection

FY 2022/23 (First six months) Target Collection Shortfall Rs 651.62 billion Rs 458.98 billion 29.56%

Total revenue collection  

FY 2021/22 FY 2022/23 Change Rs 542 billion Rs 458.98 billion -15.31 percent

  Tax Revenue Collection (First six months)  

FY 2021/22 FY 2022/23 Change Rs 493.92 billion Rs 405.26 billion -17.95%