ECONOMYNEXT – Sri Lanka is targeting a 40 percent tax collection directly through income, wealth, and property taxes by 2025 from the current 30 percent with expanding tax nets and legal actions against tax dodgers, State Finance Minister Ranjith Siyambalapitiya said.
Direct taxes are collected through individual can afford to pay taxes due to their higher income along with asset and property ownership.
Since Sri Lanka faced an unprecedented economic crisis with sovereign debt default, both direct and indirect taxes have been increased while President Ranil Wickremesinghe’s administration is contemplating new wealth, property and inheritance taxes from next year in line with the commitments it agreed with the IMF.
Siyambalapitiya said the island nation’s state revenue has increased to “almost 13 percent” of the gross domestic product (GDP) now from 8.3 percent in 2022.
He said the the country had 80 percent of the indirect taxes and 20 percent of the direct taxes when the government started the recovery process from the bottom of the economic crisis.
“This means 80 percent of the state revenue was paid by all the people. The same amount was paid by both the rich and poor. Now this has changed to 70:30,” Siyambalapitiya told reporters at a media briefing in Colombo on Thursday (18) referring to 30 percent of direct taxes.
“The 20 percent direct tax has risen to 30 percent now. Our aim in 2025 is to change this to 40:60, which means 40 percent from the people who can afford to pay taxes and 60 percent from indirect taxes. Then we believe that we can implement a fair tax system.”
UNPOPULOUR GOVERNMENT
Higher tax burden has already made Wickremesinghe government unpopulour among the people. The move has reduced the people’s purchasing power and disposable income significantly, economists say.
However, Siyambalapitiya said the country has to sustain the current tax policies to stabilize the economy.
“To become a country with a stable economy, we need state revenue of 15 percent of the GDP. We got trapped because our revenue fell to 8.3 percent of the GDP,” he said.
“We are now in the process of acting on those who hadn’t paid tax dues. Now we have asked to register 14 special categories for taxes including lawyers, doctors, tuition teachers who conduct mass classes, surveyors, engineers who work privately.”
“We are also in the process of taking legal action against tax evaders. What we are trying to do through all these efforts is to increase the direct taxes, collect taxes from those who can afford to pay taxes,” he said.
Siyambalapitiya said once the government reached the state revenue of 15 percent of the GDP with 40 percent direct taxes, it would like to reduce indirect taxes and increase threshold level of PAYE (Pay As You Earn) tax from the current 100,000 rupees.
“We are aware that these need to be done. But we have to reach certain economic level. Which government wants to burden unnecessary taxes on people?” he said.
“So, on the first option we get after reaching better revenue, we are ready (to cut taxes). I can’t give an exact date for that.”
“It is very difficult to increase the taxes to 13 percent (of the GDP) from 8.3 percent because we have to do this with the help of the public. We believe that we can reach the tax revenue of 15 percent of the GDP soon with the way we are progressing.” (Colombo/July 18/2024)