Government overhauls taxation effecting 10 tax changes
The cash-strapped government has effected an unprecedented taxation overhaul this year by introducing 10 tax changes while amending value added tax (VAT) four times to increase revenue.
According to the Central Bank’s report on “Recent Economic Developments: Highlights of 2022 and Prospects for 2023”, 35 tax amendments including these 10 changes were made since 2019 up to October this year.
These tax changes included surcharge tax levied on income on one-off basis at the rate of 2.5 per cent per annum, social security contribution of 2.5 per cent, and excise duty on cigarettes and liquor.
Tax revenue increased by 24.6 per cent to Rs. 798.8 billion during the first half of 2022, compared to the corresponding period of 2021. Finance Ministry data shows.
Inland Revenue Department (IRD) has been given a target of a little over Rs. 900 billion for 2022, a high ranking IRD official said.
The increase in revenue collections from income taxes, VAT, excise duties, and PAL mainly contributed to the increase in tax revenue collection, in nominal terms, during the first half of 2022.
However the IRD has faced administrative difficulties in tax collections as a result of 10 tax changes made from time to time by issuing gazette notifications, he added.
These ad hoc changes and inconsistent tax policy has exerted heavy economic burden on the people as they were compelled to pay these indirect taxes which will increase inflation, a tax expert said.
The government is planning to raise revenue of Rs. 915 billion from income tax and Rs. 1763 billion from other taxes this year, Finance Ministry provisional estimates indicated.
The total revenue is estimated at Rs. 3415 billion and the expenditure Rs.5819 billion in the budget 2023 .The estimated revenue for 2022 was Rs.2500 billion which is unlikely to be achieved under the present circumstances, a former deputy governor of the Central Bank told the Business Times.
Despite the significant rise in interest rates, the rapid increase in fixed deposits, fixed loans and Treasury bill portfolios and non-performing equity loan transactions reflect the severe instability in the domestic economy and financial system.
Therefore the overhauling of taxation will not bring expected results for 2023, he predicted.
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