Sri Lanka’s premier private sector lobby group, the Ceylon Chamber of Commerce, urged the Government to accelerate reforms and ensure greater accountability of its spending to complement the proposed tax hike.
The Ceylon Chamber’s stand comes hot on the heels of growing opposition to the Government’s move to double corporate income tax to 30 percent amidst other hikes.
In a statement, CCC said it acknowledges the rationale for the recently proposed tax changes but called on the Government to show greater restraint, accountability and transparency on its spending.
“While the tax hike will invariably impact businesses and private sector employees adversely in the current context of high inflation and negative economic growth, it is the widely held perception of the tax revenue not being fully utilized for the benefit of the people, that is likely to drive public opinion on this matter.
“Hence, it is imperative that the Government effectively communicates the actions it is taking to reduce Government expenditure and prioritize spending on areas that are critical to the public,” the Chamber said.
It emphasized that as a part of the fiscal reform agenda, the focus should be in terms of rationalizing and curbing Government expenditure wherever possible.
In 2021, 31 percent of the recurrent expenditure was on public sector salaries of which 30 percent was spent on Provincial Councils while 34 percent was absorbed by defense, policy and public security.
“These must be relooked at in terms of the current priorities of stimulating growth and the need to reallocate expenditure towards spending on more critical areas like public education, health and research and development,” the Chamber said.
In addition, greater accountability, transparency and governance of existing Government expenditure along with visible steps to curb corruption are also essential requirements to motivate tax payers in knowing that their contribution is being well spent.
To drive higher tax collection, the existing tax payer base will need to be widened further so that the burden does not fall on the current base consisting of a small number of corporates and the salaried workforce to a large extent.
This will require significant reform in tax administration and improving the capacity of key revenue collecting agencies to reduce the leakages and ensure greater compliance. Policymakers should make better use of digital solutions to link existing Government agencies and efforts like the introduction of a Digital ID should be prioritized in this regard.
The Ceylon Chamber said the fiscal reform agenda will need to be complemented with genuine efforts to unlock growth and investment opportunities through State-Owned Enterprise (SOE) reform, improvement in the ease of doing business and investment climate and providing a more conducive trade policy environment for exports to flourish.
This will ensure that growth does not stagnate in the next few years and there will be opportunity for the private sector to reinvest and create more economic activity that will stimulate tax collection.
