Friday, December 9, 2022
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Government grapples to raise revenue from new tax policy changes

Sri Lanka is grappling to raise revenue from ad hoc tax policy changes without gaining optimum use from the existing tax structure before going for new taxes, a budget 2022 analysis report released by the Parliamentary Committee on Public Finance revealed.

The committee expressed its doubt on collecting more revenue from new taxes on a revenue administration that is already stretched when there is ample room to revise thresholds and rates on several existing taxes.

It has been observed that the additional tax revenue could have been raised with the minimal amendments to existing legislation.

In addition, taxes with retrospective effect, such as the surcharge tax, are not good signals for prospective investors, the committee pointed out.

The assumptions and actions that have been presented in the budget to justify this significant increase in revenue expectation have been evaluated by the committee while making its observations.

The majority tax revenue collection is to be from one-off surcharge tax, the committee observed.

Proposed surcharge tax does not indicate the tax base on which the surcharge tax will be imposed. Given past experience it is unlikely that the expected Rs. 100 billion can be collected through the proposed policy changes.

The committee also noted that revenue from corporate tax would also depend on the economy achieving the growth target of 5 per cent as estimated but there are doubts in achieving the expected target.

The Special Goods and Services Tax (SGST) is estimated to bring in an additional Rs. 50 billion in revenue in 2022.

Revenue from taxes on telecommunications, liquor, cigarettes, betting and gaming and vehicle imports proposed to be consolidated under the SGST has significantly declined over the past three years.

Given the already difficult macroeconomic environment, along with ad hoc tax policy changes raising the additional revenue estimated at Rs 50 billion seems a difficult task, the committee observed.

Cash inflows by way of revenue and other receipts are expected to come down under the present economic setback while all efforts are being made to control cash outflows in the coming months, official sources predicted.

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