Sri Lanka is not yet at a juncture to digitalize its tax system as proposed in the budget, International Monetary Fund Resident Representative in Colombo Eteri Kvintradze said.
“How can you digitalize the tax code with so many exemptions?” she asked at the LBR/LBO Forum on Sri Lanka Business Climate Outlook of 2016.
Kvintradze said that the government will have to hire more lawyers, tax professionals and technicians to account for the exemptions and different bands of taxes imposed, which will cancel out any additional taxes raised digitally.
“Therefore the taxes need to be cleaned up before digitalisation,” she said.
Finance Minister Ravi Karunanayake had said that digitalisation would allow the government to bring more people who had evaded taxes into the tax net.
However, the budget reduced both personal and corporate income taxes which are mainly addressed in digital tax systems in developed counties to 15 percent while increasing the personal tax exemption threshold to Rs.2.4 billion. The global average is 23.5 percent and 31.2 percent for corporate and personal taxes respectively. Due to this move, direct taxes fall from a projected Rs. 249 billion in 2015 to Rs.233 billion in 2016 despite digitalisation, causing a policy contradiction.
Prime Minister Ranil Wickremesinghe had also said that direct taxes should make up 60 percent of the state revenue.
However, indirect tax revenue from goods and services consumption is set to increase to Rs.993 billion in 2016 from Rs.786 billion, which experts say is draconian.