COLOMBO (EconomyNext) – Most Sri Lankan small and medium enterprises (SMEs) do not benefit from tax concessions granted by government, according to a new study which recommends a more effective and friendly tax policy.
The prevailing fiscal incentive structure – tax exemptions and concessions – is largely skewed in favour of large enterprises, according to the findings of the study by the Institute of Policy Studies (IPS) of Sri Lanka.
Most of the firms surveyed for the study were sole proprietorships, said the study, part of a report on tax policy and enterprise development in South Asia.
“Of the 150 firms surveyed, 97 percent of firms responded that they don’t receive tax exemptions,” it said.
“The low percentage of firms receiving exemptions may be an indication of the fact that firm may not be aware of the exemptions/concession available to them.”
Only a mere one percent of the enterprises surveyed have received tax exemptions or concessions offered by Sri Lanka to encourage investments in certain key thrust sectors.
The Institute of Policy Studies said there have been a number tax-related provisions in favour of SMEs.
But it noted that the lack of a sound definition of what constitutes an SME continues to be a major area of concern, and the targeting of fiscal incentive packages have been ineffective as a result.
Awareness is another area of concern as the study reveals that the majority of SMEs in Sri Lanka is misinformed with regard to the costs and benefits of tax compliance.
Most SMEs are unaware of the tax concession available to them.
“Sri Lanka needs to focus more on creating better tax awareness amongst SMEs to increase compliance and formalization,” the IPS report said.