Sri Lanka income tax responds strongly to rate reduction

Nov 26, 2013 (LBO) – Sri Lanka’s income tax volumes showed the strongest gain following a cut in the rates, in the middle of an economic downturn the reduced most other collections, a finance ministry report showed. Sri Lanka’s income tax collections rose 14.4 percent to 154.7 billion rupees in the first nine months of the year, the highest rate increase among all tax types, while overall revenue growth was only 2.7 percent.

The finance ministry said the higher collections were a “favourable consolidation of the impact of 2011 tax reforms which is aimed at lower rates and broader base.”

In the 2011 budget the finance ministry cut rates in both corporate income tax and personal income taxes including pay-as-you-earn (PAYE) collected at source from employment income.

PAYE tax collections had surged 25.9 percent to 14.4 billion rupees, after a cut in the rate and an increase in the threshold with better compliance and higher salaries declared..

The income tax increase came as a general economic downturn reduced most other taxes.

Import based taxes were down 1.3 percent 332.1 billion rupees, with customs duty down 1.7 percent to 58.5 billion rupees and excise taxes were down 3.3 percent to 74.3