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COPF urges review of tax mechanisms to prevent govt. revenue loss.

By: Staff Writer

April 28, Colombo (LNW): The Committee of Public Finance (COPF), at its most recent meeting, has examined the effectiveness of recent tax increases on tobacco and liquor, aimed at discouraging consumption and boosting government revenue.

Drawing attention to the Laffer curve in taxation, the COPF observed a decline in government revenue over the past two months compared to the same period last year, attributing it to higher taxes that have led to increased smuggling and the adoption of alternative measures.

At the meeting held recently under the chairmanship of MP Harsha de Silva, the COPF members recommended a thorough analysis of the inflation index to guide tax adjustments and research into existing tax systems to prevent revenue loss.

Hpwever State Plantation Enterprises Reforms and State Minister of Finance, Ranjith Siyambalapitiya, announced that in the first quarter of this year, state revenue has reached an impressive Rs. 834 billion.

This achievement not only surpasses the projected revenue but also indicates a growth of 6%.

Motrover the state minister emphasized that with prudent financial management and a consistent revenue pattern, 2024 promises to be a year where revenue targets can be successfully attained.

The COPF also raised concerns about the failure of the Excise Department to address issues such as non-payment of taxes and the use of fake stickers by liquor license holders, despite instructions from the Ministry of Finance.

Expressing dissatisfaction over the lack of action, the Committee emphasized the urgency of implementing recommendations to safeguard government revenue.

Questions were raised regarding the Ministry of Finance’s decision-making process on taxing essential goods, given inefficiencies in revenue collection from liquor license holders.

It was revealed that the Excise Department continues to operate manually, hindering efficient revenue collection and enforcement against illegal activities.

The COPF emphasized the need for digitalization to address these challenges, expressing surprise at delays attributed to cost concerns. They urged immediate measures to solicit quotations for digital software to prevent corruption within the Excise Department.

The Department of Treasury Operations is encountering a challenging task in handling cash flow this year. This difficulty arises from the limitations imposed by existing laws, which prohibit obtaining loans and printing money.

Moreover, government spending has escalated, attributed to both welfare and recurrent expenses. However, it is noteworthy that effective financial management practices are underway in the country.

In comparing recurring expenses between the first quarters of 2020 and 2024, there has been a substantial increase of 35% in the latter period.

Notably, there is a significant surge of 114% in loan interest repayment and a noteworthy uptick of 60% in capital expenditure. Furthermore, the capital repayment of public debt has escalated by 177%, indicating substantial financial commitments.

Shifting focus to welfare expenditure, in the first quarter of 2020, Rs. 93,670 million was allocated for Samurdhi. However, in the corresponding period of 2024, this figure has risen to Rs. 117,107 million, reflecting a notable growth of 25% compared to 2020.

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