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Sri Lankans asked to prepare for higher tax, price ‘pain’

ECONOMYNEXT – Sri Lankans should be prepared for “some pain” as the government raises taxes and administered prices in a bid to improve state finances by increasing revenue, which has been falling in recent years, a central bank official said.

“There will be renewed focus on the tax structure, base and compliance,” said K. M. M. Siriwardena, Director of Economic Research of the Central Bank.

“The increase in value added tax to 15 percent from 11 percent is one area only. There are other measures being taken by government to improve direct taxes.”

The government’s deal with the International Monetary Fund seeks to improve the revenue-to-gross domestic
product ratio and improve tax legislation, he said at the launch of the new 2016 economic and social survey

by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

“We are only ahead of the Maldives in terms of direct personal income taxation,” Siriwardena said. “That indicates the room we have to increase direct taxation.”

According to the ESCAP survey Sri Lanka has one of the lowest ratios of direct and indirect tax revenues to GDP in selected Asia-Pacific economies.

“We have seen a decline in the revenue to GDP ratio owing to tax evasion and avoidance, tax exemptions,
and policy measures taken by successive governments not being supported by improved tax administration,”
Siriwardena said.

“The government has very clearly identified the need for improving tax administration.”

Sri Lanka has come to a stage where urgent reforms were unavoidable, including in loss making state enterprises whose selling prices did not reflect costs, Siriwardena said.





“In the short run there would be some pain which has to be shared by everyone but it’s needed to have a gain in the medium to long term, especially implementation of cost reflective pricing mechanisms.”
(Colombo/April 29 2016)

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