By Bandula Sirimanna
The highly experienced Inland Revenue Department (IRD) management team wants the new administration to immediately implement a short-term revenue stimulus package after the catastrophic two years of the COVID-19 pandemic and tax cuts. senseless taxes resulted in a loss of more than 1 trillion rupees.
“Given the multiplicity of taxes and the complexity of the current tax system as a whole, rationalizing taxes and broadening the tax base are necessary to improve revenue collection for the rest of the year with the eyes wide open for positive change,” Inland Revenue Commissioners Association Chairman and Chief Commissioner Sarath Abeyratne said.
The revenue generation of the 2022 budget presented by former finance minister Basil Rajapaksa has become unrealistic and the new administration is forced to present an alternative budget restoring the 2019 tax system to boost revenue, he revealed.
Official IRD trustees led by commissioners will present their suggestions through the department’s commissioner-general at upcoming official budget meetings, he said.
The new administration should broaden the tax base, simplify tax rates and tax laws by reducing the number of taxes, facilitating voluntary compliance, avoiding tax amnesties and politically motivated tax breaks, and avoiding political interference and influence on tax administration to increase tax revenue, he said.
The digitization of tax administration will be one of the key initiatives of the IRD in the coming years following the recovery of the economy, with a major shift towards a tax regime for the digital economy, he said. he stated claiming that it will have a major impact on how the Department of Finance levies a tax on digital businesses.
Improving tax compliance and preventing tax evasion by taking advantage of the shortcomings of the current system as well as increasing the number of taxpayers should be an immediate priority, as there has been a loss of approximately one million taxpayers over the past two years following the removal of some taxes and tax cuts imposed in 2019, he added.
IRD raised Rs. 349.4 billion from January to (mid) May this year against the total target of Rs. 1067.8 billion, compared to Rs. 575 billion for the whole of last year and Rs. 523 billion in 2020, according to official data.
The drop in revenue of 50% of total tax revenue over the past two years was the introduction of major tax policy changes in December 2019, in particular the increase in value added tax (VAT) thresholds ) and the abolition of Pay As You Earn (PAYE) tax.
The government at the time reduced value added tax (VAT) from 15% to 8% and also removed seven other taxes.
Mr Abeyratne, with an extensive experience of around 30 years of service in the department, told the Business Times that it would be a mammoth task for the department to raise at least Rs. 700 billion for the financial year 2022.
Sri Lanka must take over and overhaul the current tax system to achieve economic recovery from the current unprecedented and complex economic crisis through the new Alternative Budget, he said.
He added that a proposal will be made to reduce the VAT threshold – which was raised to Rs. 300 million per year from Rs. 12 million per year at the start of 2020 – to at least around Rs. 150 million per year.
Additionally, it will be proposed to reduce the personal income tax threshold to a lower level, which was increased to Rs. 3 million per annum at the start of 2020.
Another suggestion will be made to reintroduce the PAYE, which will be a useful measure in terms of tax administration, freeing the IRD from having to focus on the entire working population.
It has also been proposed to increase the tax rate on alcohol and tobacco in line with the growth rate of nominal GDP by regularly ensuring a steady stream of tax improvements.
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