SL revenue targets on track this year
Sri Lanka’s revenue mobilisation has been reinforced this year enabling the Inland Revenue Department (IRD) to achieve the target of Rs.800 billion, official sources said adding that the department has already collected Rs. 750 billion upto November.
The revenue mobilisation efforts have gained strength from the measures adopted by the Finance Ministry.
These measures include the implementation of the new income tax legislation effective from April 1, 2018 and rationalising tax exemptions, raising the Value Added Tax (VAT) effective from mid 2016 and broadening the VAT base, and improvements in tax administration.
This was revealed in the 2019 Fiscal management report of the Finance Ministry adding that direct taxation system is expected to witness a significant development in the time ahead as the benefits of the new tax legislation comes in, in the year 2019 and beyond.
The direct taxation system broadened the tax base by eliminating a vast rate of tax holidays, partial tax holidays, and other concessions, while introducing a simplified three tier corporate tax structure, taxation of capital gains, and expanding the coverage of withholding taxes, among others, the report highlighted.
More focus has been placed on strengthening the tax return compliance, supported by measures such as conducting audits of employers’ obligation to income taxes for employees and services fees paid to professionals.
Further, the establishment of a Risk Management Unit and Dedicated Audit Unit at IRD has helped to analyse data and identify priority compliance risks and conduct high risk compliance audits, respectively, it said.
The IRD has collected Rs.652 billion from taxes, including VAT, Nation Building Tax (NBT) and Pay as You Earn (PAYE) in 2018.
The tax relief package announced recently included a reduction in the VAT rate, increase of tax-free threshold of PAYE tax and the removal of NBT. The VAT threshold has also been increased to Rs.25 million a month from Rs. 1 million per month.
The Department plans to offset the possible loss of revenue due to tax cuts by increasing corporate tax collections, IRD chief Nadun Guruge told a media conference recently.
The IRD currently maintains 26,000 VAT files, 98,000 NBT files and 273,000 income tax files, Mr. Guruge said adding that most of these tax files will be closed with the reduction of tax rates and removal of certain taxes such as NBT.
Under the new tax relief package around 500.000 tax payers have been exempted from paying taxes to the government and the revenue loss from tax cuts would be around Rs. 650 billion, several leading tax consultants said.
PAYE tax files numbering 520,000 out of 650,000 had to be closed due to the increase in threshold to Rs. 250,000 from Rs.125,000, they added.
Previously only 8 per cent of the 8 million public and private sector employees paid PAYE tax and now most of them are exempted from this tax.