Sri Lanka to double direct tax share of total collection

ECONOMYNEXT – Sri Lanka’s new Inland Revenue Act taking will double the share of direct taxes of the total collection in two years, said Finance Minister Mangala Samaraweera.

"This new legislation carves a clear strategic direction about taxation in the country. We expect to increase the share of direct income tax against indirect taxes to 40:60 by 2020, from the current level of 18:82," Samaraweera told a seminar on the new Inland Revenue Act which take effect from 01 April 2018.

That is one of the hallmarks of a fairer tax system. Yet, we are fully cognisant that this is an enormously challenging goal. The new Inland Revenue Act is a timely step in that direction. I hope we will have a smooth transition and a better system with the passage of time," he said.

Sri Lanka aims to improve tax compliance by strengthening administrative powers of the Inland Revenue Department.

Tax compliance in Sri Lanka is one of the weakest in the region.

Since independence, Sri Lanka’s income tax share of total tax revenue has remained flat and hardly crossed a threshold of 20 percent. Tax revenue to GDP declined over two decades to just over 10% in 2014.

"It is rather ironic that our relative share of direct tax income remained low. As countries grow, income tax share ought to grow," the Finance Minister said.

"The number of individuals and firms registered for paying taxes remains at a surprisingly low level.  These numbers are very hard to be corroborated with the realities given the profile of the corporate sector and the labour market dynamics," Samaraweera said.

The new Inland Revenue Act is designed to broad-base the tax net, and also to simplify rules and processes. (COLOMBO, March 20, 2018)





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