Crowing About Income Tax Collection Is Stupid and Shortsighted

By Adolf

The Government seems remarkably proud of the increase in income tax collections, presenting higher tax revenue as proof of economic success and improved governance. But there is a fundamental difference between collecting more tax and creating more wealth.

Crowing about tax collection without asking where that tax comes from—and what impact excessive taxation has on the economy—is both shortsighted and counterproductive.

The reality is that a relatively small group of responsible individuals and businesses carry a disproportionate share of the tax burden. Many of these taxpayers earn their incomes through years of hard work, entrepreneurship, investment and professional endeavour. They pay their taxes because they understand their civic responsibility.

But they are also being taxed repeatedly.

They pay direct taxes on their income and profits, while simultaneously paying a wide range of indirect taxesthrough VAT, customs duties, excise taxes and other levies whenever they consume goods and services. The same rupee can therefore be taxed several times as it moves through the economy.

These taxpayers should not be treated as an endless source of revenue. They should be recognised as an economic asset.

When tax authorities aggressively pursue compliant taxpayers simply because they are visible and easy to identify, the system risks creating a perverse incentive: the more honest and transparent you are, the more vulnerable you become to scrutiny and additional taxation. Many government ministers or public officials don’t have a tax paying history . So has very little understanding of the impact on families and livelihoods. 

That is not a sustainable tax policy.

Promote Growth

A modern tax system should certainly be effective. Tax evasion must be tackled, and everyone who is legally liable should pay their fair share. But enforcement must be fair, broad-based and predictable. The objective should not simply be to squeeze more money out of the existing tax base.

The real objective should be to expand the tax base by expanding the economy.

When taxation becomes excessive or unpredictable, businesses think twice before investing, expanding factories, hiring employees or taking risks. Entrepreneurs may postpone investment. Professionals may consider moving their expertise and capital to jurisdictions with more competitive and predictable tax regimes. Others may spend increasing amounts of time and money on tax planning—or, worse, look for ways to remain outside the formal economy.

That is precisely the opposite of what Sri Lanka needs.

Sri Lanka needs more businesses, more investment, more jobs, higher incomes and a larger formal economy. If the economy grows strongly, tax revenues will naturally increase without continually increasing the burden on the same taxpayers.

The Government should therefore stop measuring success simply by how much money it extracts from taxpayers.

Instead, it should ask a more important question:

How much new wealth have we helped the country create?

There is also an important moral dimension. The income tax paid by a successful entrepreneur, professional or company is not money that fell from the sky. It represents the result of years of work, risk-taking, investment and enterprise.

The Government should be thanking those who pay taxes, not treating them as an unlimited ATM.

Successful Countries

Successful countries do not become prosperous simply because their governments collect more taxes. They become prosperous because their citizens and businesses create more wealth, invest more, employ more people and generate higher incomes.

Tax collection is necessary to fund the State. But taxation itself is not economic growth.

The Government should stop boasting about how much it collects and start telling the public how it intends to make the economy grow.

Because if the taxman keeps squeezing the same productive people and businesses, eventually there will be less left to tax.

And when that happens, higher tax collection will no longer be something to boast about—it will be evidence that the economy has been taxed into submission.

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