VAT Hike Required to Fund Salary Increase

Secretary to the Treasury Mr. Mahinda Siriwardana stated that granting the salary increase demanded by striking public servants would necessitate raising the current VAT from 18% to between 20% and 21%.

He emphasized that the government cannot impose such a burden on the public. Mr. Siriwardana made these remarks during a discussion held today (08) at the Presidential Secretariat, chaired by President Ranil Wickremesinghe, concerning the demands of public service trade unions.

The discussion addressed the trade union actions taken by several trade unions in the public service and explored potential positive solutions to their demands.

It was noted that while a salary increase is not feasible this year, there is a plan to revise public service salaries in the 2025 budget based on recommendations from an expert committee investigating salary disparities.

The Treasury Secretary highlighted that a salary increase of Rs. 10,000 for government employees would require an additional Rs. 140 billion annually, and an increase of Rs. 20,000 would necessitate an additional Rs. 280 billion.

To generate the required income, even with optimal management of current revenues, additional tax increases will be necessary, the Treasury Secretary pointed out.

Specifically, he noted that to raise salaries by Rs. 10,000, the VAT would need to be increased by 2%.

Furthermore, to meet the trade unions’ wage demands, the VAT would need to be raised by more than 3%. He emphasized that this is not feasible now, as the VAT is already at a maximum rate of 18%.

The Treasury Secretary also explained that, due to the government’s efforts to stabilize the country’s economy, the Central Bank can no longer print money as it did before. Doing so would jeopardize the program with the International Monetary Fund.

Senior Advisor to the President on Economic Affairs, Dr. R.H.S. Samaratunga, remarked that while increasing public servants’ salaries again this year is challenging, the President has committed to allocating funds for this in next year’s budget. He also mentioned that a separate expert committee was appointed to study and report salary discrepancies.

The discussion included President’s Secretary Mr. Saman Ekanayake and senior government officials.