News
Wealth tax and inheritance tax from next year
View(s):By S. Rubatheesan
The government is to introduce two more new taxes—the wealth tax and the inheritance tax—next year to raise more revenue for the state, as tax collections fell behind expected revenue targets.
The Finance Ministry has been tasked with formulating the necessary legislation for these taxes, which will come into effect next year, according to a report submitted by a new Parliamentary Oversight Committee that was tasked with overseeing the country’s finances.
The Ways and Means Committee was established in November last year for special purposes through amendments brought into the Standing Orders of Parliament with the mandate of overseeing financial matters in the country and general oversight powers on all matters within the scope of the Committee but limited to existing laws. The Committee is headed by Opposition Parliamentarian Patali Champika Ranawaka.
According to the report, the major challenge faced by the government when it comes to collecting state revenue is the continuous budget deficits created due to government expenditures being in excess of revenue. The budget deficit from January to June this year was Rs 1.24 billion, in terms of the mid-year fiscal report.
This is due to the repayment of the foreign debt suspended after April last year and increased state expenditure compared to the first half of last year, with double payments of interest, the report notes.
The Committee has also recommended upgrading the current tax-collecting digital platform, RAMIS 2.0, in view of the proposed two taxes when renewing the agreement with the Singaporean company that developed and maintains the platform.
The tax revenue collection carried out by three key institutions—the Customs, the Inland Revenue Department and the Excise Department—in the first half of this year (January to June) is also below the estimated tax revenue targets set in the Budget 2023.
The IRD has collected only 41.81 percent (Rs 696.94 billion) of the budget estimate of Rs 1.667 trillion so far, while the Customs has collected 32.79 percent (Rs 400.07 billion) of the estimated Rs 1.22 trillion so far. The Excise Department has collected 41 percent (Rs 88.963 billion) of the estimated target of Rs 217 billion.
The report also points out the common weaknesses identified in the country’s tax structure, where unplanned ad hoc tax incentives in the form of tax holidays, relief, and concessions are given by successive governments without consistent tax policies, along with a narrow tax base. The report also notes that the total number of taxpayers in Sri Lanka is about 3 percent of the total population.
“The tax base has not been broadened in line with the increase in economic activities. For instance, casino businesses and businesses related to digital services have not been included in the tax structure,” the report says.
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