Sri Lanka could gain 1.5-pct of GDP revenue by tightening tax holidays: IMF

Nov 01, 2010 (LBO) – Sri Lanka can gain as much as 1.5 percent of gross domestic product in revenue by limiting tax holidays, and also cut tax rates if the base is broadened, an International Monetary Fund review has said. China had a standard rate of 17 percent and got 5.8 percent. Sri Lanka has been giving tax holidays for projects approved by the Board of Investment (BOI), though annual foreign investment flows have only been about 600 million US dollars.

Analysts say due to tax holidays other levies such as ‘economic service charge’ and ‘port and airport development levy’ had crept into the system, making Sri Lanka’s tax regime extremely complex.

The IMF report following the third review under its program with Sri Lanka said BOI tax holidays have been the “largest contributor to Sri Lanka’s eroded tax base,” and limiting new concessions “would be the most significant base-broadening tax measure” in tax reforms.

Depending on how narrowly the new concession regime is defined, it could give as much as 1.5 percent of gross domestic product in taxes, the report said.

“Since a sizeable portion of existing concessions are set to expire over the next two
years, and more importantly since all new investme