• Sri Lanka has deferred the controversial imputed housing tax, focusing instead on targeted subsidies for vulnerable groups to meet IMF revenue targets, while concerns persist over the country's reliance on revenue-based fiscal consolidation amid a bloated public sector.

Sri Lanka has deferred the controversial imputed tax on housing, initially aimed at taxing owner-occupied and second homes, which faced criticism for potentially discouraging housing stock expansion. Instead, the government is focusing on targeted subsidies for vulnerable groups, avoiding broad-based tax cuts. Under the IMF program, revenue targets must be met, requiring compensatory measures if tax reductions are implemented. The IMF emphasizes equitable taxation without using it for concessions, advocating targeted aid over blanket subsidies. Sri Lanka, burdened by a bloated public sector and high public spending, aims to raise revenues to 15% of GDP, but concerns persist over the reliance on revenue-based fiscal consolidation rather than spending reforms.

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