Sri Lanka’s structural tax collection system had become more efficient in 2016 than was evident at first glance, once the super gains tax and other one-off taxes levied in 2015 are discounted, the World Bank said.
“The revenue actually increased, partially due to structural increases in tax revenue, although partially it’s not easy to see in the data, because in 2015 there were one-off revenue measures like the super gains tax—which expired—which masks the structural improvement in revenue that we see,” World Bank Sri Lanka Senior Country Economist Ralph van Doorn said.
Sri Lanka collected Rs.50 billion through the retrospective super gains tax in 2015 by levying a 25 percent additional tax from groups of companies that posted over Rs.2 billion in the 2013/14
Additional one-off taxes and levies were proposed during the 2015 interim budget the government presented immediately following the January 2015 presidential elections, although some of them were not passed, since the transition government, which forms the core of the current government was a minority in parliament then.
The state tax collection improved by 8 percent year-on-year (YoY) in 2016 to Rs.1.46 trillion, although when not considering the super gains tax, the improvement was 12 percent YoY.
Inland Revenue officials were spotted hounding businessmen and professionals even after working hours in order to increase tax collection last year.
Despite the government’s strong tax growth, and even stronger revenue growth due to increases in non-tax revenues, the collection targets for 2016 were not met. Instead, the government had to cut expenditure in order to meet its 5.4 percent budget deficit target.
“Sri Lanka needs a structural improvement of its tax base rather than cutting expenditure. Capital expenditure was well below the amount budgeted, mainly because traditionally in many sector capital projects are not implemented as planned often,” van Doorn said.
He said that this is due to delays in project execution, the need to balance the budget and to control private consumption.
He added that in the future, the growth in revenue collection would depend on how and when the new Inland Revenue Act would be implemented.
The World Bank, the International Monetary Fund and credit rating agencies have shown their excitement over the potential of the new Inland Revenue Act to generate additional finances for the government and to
An online tax processing system, which makes tax payment and refunds easier, was supposed to be implemented years earlier, but has been plagued by technical bugs and other obstacles, which has delayed the implementation to this day. (CW)