Sri Lanka PAYEE tax files rise to over 204,000 plus 500,000 individuals

By: Staff Writer

Colombo (LNW): While most of the blundering tax cuts imposed by the previous Gotabaya Rajapksa regime have now been fully or partly reversed, more fundamental changes in the tax policy process will be necessary to secure sustained revenue, dinance ministry sources claimed

Sri Lanka’s tax system has been suffering from constant change, driven by shifting beliefs about potential prospects of certain business sectors or taxpayers, leading to a multitude of sector and taxpayer-specific exemptions Policy makers have introduced repeated tax amnesties

The present government implemented an aggressive upward adjustment of the personnel income tax personnel income tax PIT rate schedule and eliminated many sectoral incentives under the CIT in 2021 by amending the law.

Sri Lanka’s pay as you earn tax files had increased to 242,679 in 2023, from 41,636, Commissioner at the Department of Inland Revenue A M Nafir has said.

At total 500,196 persons were registered as individual tax-payers by end November 2023, up from 204,467,

Partnerships registered for tax had gone up to 15,579 from 13,776.The number of companies registered had increased to 81,909 from 73,444.

“In 2019, IRD revenue was 1,025 billion, in 2020 it decreased to 500 billion. This year it was possible to raise it to 1,500 billion by widening the tax base and by changing tax rates,” Nafir was quoted as saying.

“From next month, all persons above 18 years of age have to be registered with the IRD and obtain a Taxpayer Identification Number (TIN).”

“Do not misunderstand this: Getting the number and opening tax files are two things. It’s like having an NIC number. They have to pay income tax only if there is income

Sri Lanka is expecting 1,400 billion rupees from Value Added Tax in 2024, after broadening the base and raising the rate, Director of the state revenue unit of the President’s Office K K I Eranda has said.

Though 600 billion rupees was expected from VAT in 2023 only about 450 billion had been collected so far,.

Due to exemptions given in the past, there is leakage of taxes and the government was forced to broaden the base, he said.

Sri Lanka’s economic bureaucrats in December 2019 cut rates and taxes to target a potential output, triggering worst external crisis than in 2015 and 2018.

The VAT threshold which was at 15 million rupees a year was raised to 300 resulting in large numbers of payers dropping.

It was reduced to 80 million as part of efforts to raise taxes after the default and will be reduced to 60 million from January.

The Deputy Director of Economic Research at the central bank, Janaka Edirisinghe said in many countries VAT revenues were 6 to 8 percent of GDP.

In 2024 VAT revenues are targeted to increase to 4 percent of GDP. However, it was also below the optimal level, he said.

This year VAT was estimated to be only 2.2 percent of GDP. Sri Lanka will remove a Ports and Airports Levy, a type of backdoor border tax on many of the items coming under 18 percent value added tax, Tax Advisor to the Finance Ministry Thanuja Perera has said.