ECONOMYNEXT – Sri Lanka’s Inland Revenue Department has found 16 million potential tax payers among citizens agove 18 years of age and 198,253 new tax payers have registered in 2023, a parliamentary panel was told.
About 13,000 firms had registered to pay value added tax, the Committee on Public Accounts (COPA) was told.
The Inland Revenue Department was trying to use technology (RAMIS) to track large numbers of people and collect tax.
However there were still problems with the RAMIS revenue management system, IRD officials had told the parliament panel.
Sri Lanka introduced a new law to make it compulsory to register for tax, after spending zoomed under revenue based fiscal consolidation since 2015 and money was printed wantonly to boost growth under potential output targeting driving the country into default.
Under ‘revenue based fiscal consolidation’ from end 2014 to 2019, where cost-cutting (spending based consolidation) was abandoned current spending went up 74 percent to 2,301 billion rupees while tax revenue went up 65 percent to 1734 billion rupees.
From December 2014 to November 2019 tax revenues went up 65 percent to 1,612 billion rupees and recurrent spending went up 55 percent to 2,053 billion rupees, before taxes were cut in December to target ‘potential output’.
The salary and pension bill of state workers rose 123 percent to 1.26 trillion from 2014 to 2022.
Private citizens have to pay more taxes to support the public service, or face another default and money is borrowed.
By September 2023, the salary and pension bill was still about half of every tax rupee collected.
Sri Lanka is now collecting income tax from everyone who earns more that 10 dollars a day, after the revenue based fiscal consolidation and potential output targeting debacles drove the country to external sovereign default, in the wake of serial currency crises and stabilization programs which reduced growth and pushed up debt.
Unlike value added tax, where the state and rulers gets to collect money after a free citizen engages in a growth generating transaction by their own choice, income tax allows the coercive state to appropriate money before a transaction is made by the person who earned the cash.
As a result high income tax rates and the low tax free threshold (about 300 dollars a month) on top of VAT and import duties has been blamed for brain drain.
Though income taxes and other capital consumption taxes like wealth tax kills future growth and jobs by destroying investible capital, they have the advantage of being designed to hurt, and makes tax payers feel the weight the the state and the ruling class more than a painless value added tax would.
VAT which is taken in small quantities everyday, on the other hand conforms to the South Asian tax principle articulated by Chanakya of charging taxes like a bee taking honey from a flower without causing pain to the subject or making them leave the country. (Colombo/Nov18/2023)