By:Staff WriterColombo (LNW): The government has informed the International Monetary Fund (IMF) that the tax percentages can not be increased further at this juncture as requested and that the government was expecting to initiate discussions to request the IMF to reconsider its request, Minister Wijeyadasa Rajapakshe said.
He told Parliament that the IMF informed the government that tax revenue should be increased to some extent by the end of the first quarter of next year.
The Minister said if the tax revenue is to be increased, the tax percentage will have to be increased and that the government has informed the IMF that people cannot be burdened with more taxes at this juncture.
The Minister said this clarifying matters raised by the Opposition MPs that the IMF’s second tranche is delayed as the government has failed to fulfil the conditions of the IMF.
“It is not an issue of not implementing the IMF conditions. The IMF is expecting Sri Lanka to obtain tax revenue to a certain target by the end of the first quarter next year.
We have to increase the existing tax percentage to meet that tax revenue targets. We informed the IMF that the government is not in a position to further burden the people with taxes. The IMF stresses the need to increase tax revenue,” he said.
The Minister said the next round of discussions with the IMF is to request them to reconsider their request on increasing tax revenue.
Sri Lanka’s economy is expected to grow by 1.7% in 2024 after contracting by 3.8% in 2023, says the World Bank in its twice-a-year update, while signaling that the outlook is clouded with uncertainty and that growth prospects depend on progress with debt restructuring and the implementation of critical structural reforms.
The Sri Lanka Development Update, Mobilizing Tax Revenue for a Better Future, says that improved revenue mobilization is critical to Sri Lanka’s return to macroeconomic stability.
The country has one of the lowest tax-to-GDP ratios in the world. By 2022, the tax system was characterized by low, multiple, and frequently changing rates, a narrow and shrinking base, a high tax burden on labor rather than capital incomes, an over-reliance on indirect taxes, and a weak administration with poor compliance outcomes.
These features have made the system complex, inefficient and inequitable.A government-led tax reform package has been under implementation since May 2022.
Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. Said “Current efforts to mobilize tax revenue should be coupled with continued reforms towards transparency of expenditures to build public confidence and to deliver better public services.”
The effective implementation of a Tax Administration Modernization Strategy will be essential to ensure that tax policy reforms translate into a sustained increase in revenue collection.
Core priorities should include the promotion of e-filing, the utilization of third-party information to strengthen compliance risk management, streamlining dispute resolution, and the recovery of taxes in default.