The Inland Revenue Department’s (IRD) vastly experienced top management team wants the new administration to immediately implement a short term revenue revival plan after the catastrophic two years of COVID-19 pandemic and mindless tax cuts resulted in a loss of over Rs 1 trillion.

“Given the multiplicity of taxes and the complexity of the current tax system as a whole, rationalising taxes and expanding the tax base is necessary to improve revenue collection for the rest of the year with eyes wide open for a positive change,” Chairman of the Inland Revenue Commissioners Association and senior commissioner Sarath Abeyratne said.

The revenue generation from the budget 2022 presented by former Finance Minister Basil Rajapaksa has become unrealistic and the new administration is compelled to present an alternative budget reinstating the 2019 taxation system to raise the revenue, he disclosed.

The IRD official administrators spearheaded by commissioners will present their suggestions through the Commissioner General of the department at the upcoming official budgetary meetings, he pointed out.

The new administration should widen the tax base, simplify the tax rates and the tax laws reducing the number of taxes, facilitating voluntary compliance, avoiding politically motivated tax amnesties and tax concessions, and avoiding political interferences and influences on tax administration to enhance tax revenue, he said.

Digitisation of tax administration will be one of the key initiatives for the IRD in the coming years following the resurgence of the economy, with a major shift to a digital economy tax regime, he said claiming that it will have a major impact on the way the Finance Ministry levies tax on digital firms.

Improving tax compliance and preventing tax evasion making use of loopholes in the present system as well as the increase in the number of tax payers should be given immediate priority as there was a loss of around one million tax payers within the last two years following the removal of certain taxes and tax cuts imposed in 2019, he added.

The IRD has collected Rs. 349.4 billion in January to (mid) May this year from 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, official data shows.

The decline in revenue of 50 per cent of the total tax collection in the last two years was the introduction of major changes in tax policy in December 2019, particularly the increase in thresholds for Value Added Tax (VAT) and the abolition of Pay As You Earn (PAYE) tax.

The then government has slashed the value added tax (VAT) to 8 per cent from 15 per cent and also abolished seven other taxes.

Mr. Abeyratne, with wide experience of around 30 years service in the department, disclosed that it will be gigantic task for the department to collect at least Rs. 700 billion for financial year 2022.

Sri Lanka needs to resume and overhaul current tax system to achieve economic recovery in the face of the present unprecedented and complex economic crisis via the new alternative budget soon, he said.

He added that a proposal will be made to reduce the VAT threshold – which was increased to Rs. 300 million per annum from Rs. 12 million per annum in early 2020 – to at least around Rs. 150 million per annum.

Additionally, it will be proposed to reduce personal income tax threshold to a lower level, which was increased to Rs. 3 million per annum in early 2020.

Another suggestion will be made to reintroduce PAYE, which will be a useful measure in terms of tax administration, releasing the IRD from having to focus on the entire employee population.

It has also been proposed to increase the tax rate on alcohol and tobacco in accordance with the growth rate of nominal GDP ensuring a steady stream of tax enhancements regularly.

WindForce PLC the largest Independent Power Producer (IPP) of renewable energy in Sri Lanka has shown tremendous resilience amidst turbulent times maintaining stability in both top-line and gross profitability over financial years 2021 & 2022.

 In FY21/22, the company recorded a group revenue of Rs 4,393Mn contributing to a 2% YoY growth despite significant economic headwinds, and a gross profitability of Rs 2,724Mn reflecting a gross profit margin of 62%.

The top-line achievement in FY21/22 was amidst several operational disruptions such as a breakdown at the CEB’s Norochcholai Wind Collector Substation which was subsequently rectified in September 2021, as well as decreased operational capacity in WindForce’s Joule and Beta power plants due to blade damages caused by lightning.

 With repairs being made to the damaged turbine blades, the company expects to run at full capacity in the current financial year

 Pioneering wind power generation locally, WindForce will hold over 245MW in their portfolio at the end of the current financial year, and was the first Sri Lankan company to set up solar power plants in Pakistan, Uganda, and Ukraine.

Renewable energy generation is known to be highly seasonal with Sri Lanka’s wind patterns varying throughout the course of the year. 

Therefore, as WindForce’s power generation is predominantly based on wind power, it is prudent to appraise the company’s financial performance in terms of gross profitability on an annual basis as opposed to a quarterly appraisal..

Further, as with most companies, key policy changes implemented by authorities such as the sudden floatation of the Sri Lankan Rupee in early March following a hard peg throughout, led to the company absorbing a significant exchange loss of Rs 296Mn on foreign currency loans in a single quarter, i.e. Q4 of FY21/22. 

However, it is important to note that all overseas project revenue is entirely foreign currency denominated, and all foreign currency debt is backed by foreign currency assets. In dollar terms, total FC assets stood at twice the total FC debt as of 31^st March 2022, where FC assets are held at cost, and loans revalued quarterly.

It is noteworthy that WindForce has continued in its efforts to successfully venture into new projects in FY22/23 to support the company’s medium-long term growth. 

At the end of 2022, WindForce is expected to add 25MW of solar and wind power to the local grid, where operational earnings are expected to flow from the second quarter of FY 22/23 onwards.

On the international front, WindForce is looking to expand the Tororo solar plant in Uganda by 30MW and are awaiting the generation license approval from the Regulator in Uganda. 

Discussions are also currently underway with the utility in Senegal regarding the 30MW solar + 7.5MW battery energy storage system, to set a beneficial tariff rate.

Locally, the sector’s economic contribution is demanding change in overall industry dynamics, with a greater emphasis on the shift to renewable energy, and upward revisions in CEB tariff rates. 

As an IPP with a strong local presence and a foreign footprint, WindForce is well-positioned to capitalize on opportunities both locally and globally