Sri Lanka combs economy for new tax payers

July 17, 2009 (LBO) – Sri Lanka is widening the tax net to catch small shop owners and hair dressers to fluff up flagging government income, while excise revenues had also lost it usual buzz, officials said. “Most businesses such as boutiques, hair salons and retailers don’t pay value added tax (VAT),” the head of Sri Lanka’s revenue office, E M M Meegoda told reporters.

“If they volunteer to pay VAT they will only be charged at 5.0 percent, if they don’t they will have to pay the normal 12 percent.”

Meegoda said the concessionary rate will be given for three years.

Falling Revenues

Sri Lanka’s state revenues had fallen 8.7 percent in the first five month of the year as economic growth slowed. tax revenues fell 6.7 percent.

Value added tax fell 24.3 percent to 65.7 billion rupees to May. Politicians have been giving VAT waivers to sectors that have lobbied for their patronage to gain popularity.

But a newly introduced VAT-like ‘nation building tax’ has brought 4.1 billion rupees, according to a finance ministry report.

Sri Lanka needs more revenues to support an expanding government. Unchecked spending and falling income has pushed Sri Lanka’s revenue deficit to a