The VAT will rise to 15% from 11% and will be imposed on private sector health services as the government struggles to reduce a ballooning budget deficit amid a debt crisis.

The move is part of the government’s plan to meet a repeated request to raise revenue from the International Monetary Fund (IMF), which on Friday reached an agreement with Sri Lanka for a US$1.5bil bailout to help the island nation avert a balance of payments crisis.

“It will be 100 billion rupees, or 0.75% of the GDP (gross domestic product),” Karunanayake told reporters in Colombo.

“We consider this as a corruption tax due to the mismanagement by the previous regime.”

He said the IMF loan was a step of “abundant caution”, adding Sri Lanka was not facing a balance of payments crisis.

The island nation’s budget deficit almost doubled to 7.4% of GDP from an original forecast of 4.4% due to heavy debts incurred by the previous government headed by Mahinda Rajapaksa.

Revenue increased by 13.1% of GDP last year, compared with 11.5% in the previous year, mainly due to increased revenue from vehicle taxes.

The government is aiming for a 12.7% rise in tax revenue this year.

(thestar.com)