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IRD warns of more revenue loss; urgent tax reforms not done
The Government continues to suffer colossal losses in tax revenue due to the 2019 decision to remove and reduce many taxes, and the situation will only become worse if urgent tax reforms are not done, officers of the Inland Revenue Department (IRD) warn.
H A L Udayasiri, Secretary of the Inland Revenue Service Union (IRSU), told the Sunday Times that the IRD’s revenue had fallen from Rs1,025 billion in 2019 to just Rs 424 billion in 2020, due to the Government’s decision to drastically slash existing taxes and remove some taxes altogether. The IRD had set a tax revenue target of Rs570 billion for this year, but only about Rs470 billion had been collected up until the end of October, meaning the IRD will fall well short of its target, Mr Udayasiri noted.
The stark reality facing the IRD was conveyed to a group of ministers led by State Minister Shehan Semasinghe that Finance Minister Basil Rajapaksa had dispatched to the Department and other State institutions that bring in the highest amount of tax revenue. The committee had been dispatched to meet with senior officials and trade unions at these departments to obtain their views on how to increase tax revenue as the Finance Minister prepares to present the 2022 Budget on November 12.
The Government’s tax cuts in 2019 had cost the IRD approximately Rs601 billion in tax revenue, Mr Udayasiri noted. The Government removed the Nation Building Tax (NBT), Economic Service Charge (ESC) and the Debt Repayment Levy (DRL) among others. It also reduced Value Added Tax (VAT) from 12% to 8%.
Mr Udayasiri said with the removal of the NBT, 92,000 tax files had to be discarded. A total of 20,300 tax files were removed after the reduction of VAT as they no longer fell under the VAT threshold, while 17,300 tax files were removed due to the removal of ESC.
The IRSU submitted its proposals calling for urgent tax reforms to recover at least some of the lost tax revenue, including proposals to reintroduce some of the taxes, he further remarked.
State Minister Semasinghe meanwhile, conceded that the Government had lost billions owing to the 2019 tax cuts. “They were effected because we believed it will bring benefits to consumers, but this did not occur. The Covid-19 pandemic then made our situation worse. We will take in these proposals and work to ensure that the forthcoming Budget will maximise Government revenue without putting additional burden on the people,” he claimed.