Tax rates have been identified as the most problematic factor for doing business in Sri Lanka with tax regulations following closely, the findings of the latest Global Competitiveness Report (GCR) by World Economic Forum showed.
In 2011, Sri Lanka introduced reforms to its complex tax system with the aim of implementing a simplified tax system that would boost government coffers in the wake of Balance of Payment (BoP) crisis the country was facing.
However, looking at the government revenue and its proportion of tax income, it is doubtful whether the socalled reformed tax system yielded the expected results.
For example the tax revenue during January to May 2012 (after the introduction of tax reforms) increased only 11.9 percent in comparison to a 23.76 percent increase during the period from January to May in 2011. The tax reforms were introduced in April. 2011.
The third most problematic factor for doing business in Sri Lanka identified by GCR was inflation. The country is currently following a tight monetary policy, while keeping interest rates high to tackle inflation.
Inefficient government bureaucracy has been identified as the fourth impediment for business growth with policy instability and corruption recognized as fifth and sixth most problematic factors, respectively. Meanwhile, Sri Lanka was ranked 68 out of 144 countries in the 2012/2013 GCR, a drop of 16 positions from 52nd place. At the global level, Switzerland has topped the ranking for the fourth consecutive year while Singapore was ranked second. The number 3 place was secured by Finland, followed by Sweden. India’s GCR rank stood at 59, a slide from the 56th place in 2011/2012. “Global growth remains historically low for the second year running with major centers of economic activity— particularly large emerging economies and key advanced economies—expected to slow in 2012– 13, confirming the belief that the global economy is troubled by a slow and weak recovery. As in previous years, growth remains unequally distributed. Emerging and developing countries are growing faster than advanced economies, steadily closing the income gap,” the report noted.