Sri Lanka raises taxes ahead of foreign debt deal

Sri Lanka slapped a new 18% value added tax (VAT) on fuel, mobile phones and computers from Monday to raise desperately needed revenue ahead of a foreign debt restructuring.

An earlier VAT of 15% on other consumer goods was also increased to 18% as the government sought to shore up its finances while the Island nation emerges from its worst economic crisis in history.

"In order to achieve economic stability, we must continue to forge ahead in this demanding path -- one that is not adorned with flowers but presents formidable challenges," Lankan President Ranil Wickremesinghe said in his New Year message.

Months of civil unrest sparked by the economic crisis forced the resignation of then-president Gotabaya Rajapaksa when protesters stormed his residence in July 2022.

His successor Wickremesinghe has raised taxes and cut government subsidies to comply with an International Monetary Fund (IMF) bailout and cracked down on anti-government protests.

The IMF rescue programme requires him to finalise by May a restructure of the country's $46 billion external debt after a government default in 2022.

The higher taxes kicked in as the government negotiated with its bilateral lenders and sovereign bond holders to reschedule repayments, a key condition of the IMF bailout.