Treasury calls for brainstorming by industry experts on widening tax base
Sri Lanka’s Treasury has called on industry experts to suggest ideas of widening the tax net, in a bid to bring in new areas to collect taxes, an industry official said. The first meeting on Tuesday saw industry experts such as Asite Talwatte, Riyaz Mihular, Duminda Hulangamuwa and Manjula de Silva discuss these issues with the Inland Revenue Department (IRD) officials, the official said. ”This was an informal meeting recommended by Finance Minister Ravi Karunanayake to discuss ideas on how to widen the tax base,” an expert who participated at this meeting, told the Business Times. He added that they had an initial discussion late last month and will be meeting in the next few weeks to hammer out ways to increase tax collection. “We will present these findings to the Minister after a month.”
The minister confirmed this, to the Business Times, saying that he’ll reveal the results in a few weeks. He said that they are aware that there’s at least 60 per cent of the wealthy class who were not paying taxes and that they need to be brought under the tax net. Some of the world’s advanced economies represented in the Organisation for Economic Co-operation and Development (OECD) have a tax revenue-to- GDP-average of 36 per cent, he added. “Many countries collect more direct taxes than Sri Lanka, for example Malaysia (over 60 per cent), India (over 50 per cent), Pakistan (around 40 per cent) and Thailand (50 per cent),” he said. The reason for the weak tax base is the horde of tax exemptions, tax evasion, countless discretionary tax measures in operation, and weak tax administration, he explained.
According to reports, less than 600,000 people pay taxes in Sri Lanka and 1.3 million civil servants are not taxed. The tax to GDP ratio of Sri Lanka is about 16 per cent and it has been declining since 1990. “We are trying to increase direct taxes while bringing down indirect taxes for the benefit of middle and low income groups,” another official said. Currently tax revenue is around 10 per cent, which the Central Bank Governor Arjuna Mahendran has slammed as ‘pathetic’ in media reports. He told the Business Times that donor agencies such as the International Monetary Fund (IMF) have asked why Sri Lanka’s tax collection is low. “They have always said that we need to come up with better tax collection and I tend to agree with them that we have to innovate to get out of this situation. Despite our high per capita income we tax our people like a sub-Saharan country,” he said adding that taxes need to be simplified, tax holidays reduced and the system made more transparent.