July 21, 2015 (LBO) – Sri Lanka needs to minimize tax exemptions and improve direct taxation in order to broaden the tax base, Deputy Governor of the Central Bank said.
“If you look at the tax exemptions, there are a large number of tax exemptions.” Deputy Governor Dr. Nandalal Weerasinghe said.
Island’s Inland Revenue Act contains over 50 pages of exemptions from income tax.
“When you do tax reforms, there are lots of political pressures coming up asking various tax exemptions for this area and that area,”
“Actually it is very difficult to broad base the tax system with that kind of policy. You should have firm policy and should stick to it,”
Deputy Governor was speaking at a seminar on post war Sri Lanka organized by the Ceylon Chamber of Commerce last evening.
Sri Lanka needs to simplify the tax system further and strengthen the tax administration to improve revenue collection.
Further measures are to be introduced to reduce over dependence on indirect taxation, Weerasinghe said.
Over the medium term Sri Lanka aims to increase revenue to GDP ratio from current 11.6 percent of GDP to around 16 percent.
Budget deficit in 2014 was 5.7 percent of GDP slightly higher than 5.4 percent recorded in 2013.
“This was mainly due to low revenue mobilization during the period.” Weerasinghe said.
2015 budget focused on simplification and rationalization of tax system with an aim to enhance government revenue.
“It is necessary to intensify efforts to increase tax revenue collection and further consolidate government expenditure.” Weerasinghe stressed.