A Presidential Taxation Commission appointed recently aims to widen the tax net and increase tax income from the current 14 percent to 20 percent of the Gross Domestic Product, an official said yesterday.
"Twenty percent is the standard for a developing country but here our tax base has been low due to tax evasion," he said.
President Mahinda Rajapaksa appointed the nine-member Commission to study the revenue gathering process and work out a National Tax policy to be implemented from next year.
The Commission, headed by Prof. W.D. Lakshman, former Vice Chancellor of the Colombo University and currently an economic advisor to the President, includes top economists and officials from the public and private sectors.
They are Sarath Jayatilleke, Rajan Asirwatham, Nihal Fonseka, B.R.L.Fernando, Dr. Saman Kelegama, Samantha Kumarasinghe, R.P.L.Weerasinghe and K.J.Weerasinghe.
The official said tax income upto now had not been able to keep up with budget targets. "One of the reasons was the tax amnesty offered some years ago. This led to a lot of tax income disappearing," he said.
The commission would recommend major reforms in the area of taxation with the aim of bringing about a broad-based, simple and people-friendly tax system, he said.
The commission would study the administrative structure of the Inland Revenue Department (IRD), Customs and Excise Departments and propose how best these could be reformed to suit modern day needs and how greater co-ordination could be achieved among these revenue collecting institutions, he said.
The commission would study problems connected with the implementation of the Value Added Tax (VAT), its refund mechanism, the possibilities of expanding VAT and how this tax cuold be made operative as an effective and simple indirect tax.
The commission would also look into the system of devolved taxes assigned to the Provincial Councils and recommend how the potential revenue collection could be improved while ensuring effective revenue sharing and usage among central, provincial and local government units.
The official said the commission would also study concessions granted since 1977 by way of tax holidays and exemptions with the intention of promoting investments.
It would make a cost-benefit analysis of such concessions and identify complexities or anomalies that had been caused by different tax treatment of similar entrepreneurs, particularly the discriminatory impact on local entrepreneurs, he said.
The existing incentive payment schemes of the revenue departments too might see an overhaul with the commission being asked to recommend alternative schemes based on revenue efforts if it found the present schemes deficient and undesirable.
One reason for the appointment of the commission has been the decline in tax revenue in relation to GDP over the years. The commission’s main purpose is to make proposals as to how a tax/GDP ratio that is comparable with other emerging economies could be achieved in Sri Lanka.
The commission is expected to submit an interim report within five months and a final report by next year.
The last Tax Commission appointed in 1990 was headed by Dr Shelton Wanasinghe, a retired civil servant, and included Tax Commissioner-General Hugh Moligoda and Attorney General Shiva Pasupathi.