By Uditha Jayasinghe

COLOMBO Crisis-hit Sri Lanka will focus on improving tax collection as it streamlines the structure of the tax system, the treasury secretary said on Wednesday, with new legislation planned to improve public finances.

The steps follow comments by the International Monetary Fund, which blamed an expected shortfall in government revenue generation for its failure to reach a staff-level pact with Sri Lanka after a $2.9-billion bailout package in late September.

"Sri Lanka has to strike a very delicate balance," Treasury Secretary Mahinda Siriwardana said.

"It is imperative that historically high budget deficits must be reduced through better tax collection and improvement in tax administration ... to recover from the financial crisis."

Besides tackling debt management, the government wants to restructure loss-making state-owned enterprises, he said, with plans to introduce new legislation to reform loss-making commercial public firms before the end of the year.

"Loss-making state-run enterprises have also placed a massive burden on state banks," Siriwardana said. "These multiple challenges can only be addressed by reducing the strain on the Treasury."

The IMF had urged the Indian Ocean nation to strengthen tax administration, scrap exemptions and stamp out evasion so as to boost revenues and signal better governance.

The failure to sign a staff-level agreement in the first review following the bailout package could delay release of a second tranche of funds.

(Reporting by Uditha Jayasinghe; Writing by Swati Bhat; Editing by Sudipto Ganguly and Clarence Fernandez)