"The government will present the VAT Bill in parliament on August 11 despite the court case pending against the proposed legislation. The delay in presenting the Bill in parliament has hampered the government in reaching its revenue targets, Central Bank Governor Dr. Indrajit Coomaraswamy said.
"This delay being a court case, after August 11 we will be able to catch up revenue targets when the VAT comes into force, Coomaraswamy told a media briefing which was organized by the Central Bank yesterday. The event was held at the Central Bank auditorium, Colombo.
He said when the government's revenue targets are achieved there will be high credit growth in both the private and public sectors.
The Governor also said the government will raise policy rates to 'lean against' them in case fiscal slippages occur from a delayed value added tax hike.
A higher than expected credit expansion and strong growth could be expected.
"Sri Lanka would still grow at 5.0 percent or more after policy rates are hiked 50 basis points to 8.5 percent, he said."A suspension of value added tax legislation by the courts could undermine, both; revenue collection and 2.0 percent gross domestic growth correction this year."Early indications on growth were also strong, based on tourist earnings, remittances, domestic industry and services, Coomaraswamy said.
"The transformation of monetary policy has provided some easiness to the private sector to expand its financial policy. Therefore, it was possible to record a high credit growth rate in the private sector.
"Monetary policy has been tightened as a way forward in case of a slippage of monetary policy, where balance of payment issues are concerned, the Governor explained.
"Further, the CBSL, as a way forward, adopted a policy to maintain excess capital for the next five years in order to pay government debt services and to also iron out the uncertainty in the fiscal situation in the country, he said.
"Measures have been taken to rectify import duty charges, which went up in an unsustainable manner during the last many months.
"Last year the country's imports were increased to unsustainable levels due to a high volume of vehicle imports, while exports declined considerably. This has resulted in a fiscal imbalance for the country, the Governor said.