January 31, Colombo (LNW): The current high-tax regime backed by the International Monetary Fund (IMF) could potentially exacerbate the growth of the informal economy, impeding economic recovery and constricting the tax base in Sri Lanka, leading advocate of free-market capitalism, Dr. Tom G. Palmer, Executive Vice President (International Programmes) at the Atlas Network, warned.
Speaking at a panel discussion during the Economic Freedom Summit organised by the Advocata Institute in Colombo, Dr. Palmer highlighted the experiences of nations emerging from debt crises.
He noted that countries successfully recovering from such crises often embraced simplified, low tax rates, diverging from the high tax rates prescribed by the IMF.
Dr. Palmer cited Greece as an example where a bold rejection of IMF-prescribed high taxation contributed to a thriving economy, particularly in the tourism sector.
The result was an expanded tax base and increased tax collection. Similarly, war-torn Ukraine opted for a flat tax rate, moving away from a complex ‘optimised tax rate,’ ultimately curbing the influence of corrupt oligarchs.
Encouraging the Sri Lankan government to take a bold stance in negotiations with the IMF on taxation, Dr. Palmer emphasised that a lower tax rate should be coupled with digitisation and a reduction of bureaucratic inefficiencies in the public sector to combat corruption.
Drawing parallels with the transformation of Georgia’s entire police force within three months, Dr. Palmer underscored the potential impact of bold policies and decisive actions.
He suggested that such measures, when implemented, could yield positive and desired results for Sri Lanka’s economic landscape.
