Sri Lanka’s tax-take weakens amid slowdown, exemptions: IMF

Feb 14, 2013 (LBO) – Sri Lanka’s tax revenues had fallen below target in 2012 amid an economic slowdown, declining imports and tax exemptions, the International Monetary Fund said. The IMF said Sri Lanka’s value added tax (VAT) regime is yielding less taxes than it should at current rates in force.

“Strengthening the administration of the VAT is a very important reform,” IMF mission chief to Sri Lanka John Nelmes said.

“An international comparison of VAT shows that the revenue that is brought in for every percentage point is low by international comparison

“And this indicates that there is a case for improving administration, for reducing exemptions and broadening the base, that will bring in more revenue for every one percentage for VAT.”

Complex VAT

Value added tax works best when applied with a single rate – such as 20 percent – with exports zero rated and few or no exemptions.

Unlike import duties such a regime is less interventionist and ensures that powerful special interest groups such as domestic production lobbies do not get any special benefits to exploit consumers and refunds are minimized and limited only to exporters.

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