Sri Lanka’s government taxes people more in 2015

Sri Lanka’s revenue- hungr y government has taxed its people more in 2015, as the tax income to gross domestic product (GDP) has increased to 11.5 percent from 10.1 percent in 2014, the Census and Statistics Department data showed.

This is considered a positive fiscal development as the country’s tax revenue-to-GDP is the lowest in the region and among the similar rated peers. Falling government revenue against the GDP is one of the key concerns repeatedly highlighted by the International Monetary Fund (IMF), other multi-lateral lenders and rating agencies. Meanwhile, the government’s total revenue has also increased to 13.1 percent of GDP from 12 percent in 2014.

Falling Value Added Tax (VAT) collection has been identified as the main cause of the decline in tax revenue in recent years. The VAT component of total tax collection has also fallen to 26 percent in 2014 from 41 percent in 2005. Further the VAT collection as a share of GDP has also declined to 2.7 percent in 2014 from 5.8 percent in 2004.

Budget 2016 targets a 12.7 percent tax revenue and 16.3 percent total revenue to GDP and the recent upward revisions in direct and indirect taxes and the proposal to re-introduce the controversial capital gains tax is a sure boost to the tax revenues. This would also favourably influence IMF as the government is negotiating a US $ 1-1.5 billion stand-byarrangement facility with the lender. Falling government revenues and export earnings as a percentage of GDP during the last 15 years have been identified as the two economic paradoxes in the Lankan economy.