Sri Lanka’s high taxes said to encourage illegal economy

Oct 22, 2009 (LBO) – Sri Lanka’s complex tax structure and high rates are working against the government by pushing consumers to move towards the informal economy that doesn’t pay taxes, a senior economist said.

“The Central Bank estimates that revenue losses at import entry points due to illegal importation and under valuation of imports are in the region of 300 million rupees a day,” Saman Kelegama, executive director at the think tank, Institute of Policy Studies, said.

“The Board of Investment estimated that in the mobile phone market alone illegal imports, spurred by high duty rates, have caused revenue losses in the magnitude of 600 million rupees.”

Kelegama’s comments came during a speech at the 14th tax oration seminar on anomalies of the tax system in Sri Lanka, organized by the Institute of Chartered Accountants of Sri Lanka, Wednesday.

Sri Lanka has one of the highest import taxes in Asia. Kelegama said a motor vehicle can be taxed as much as 300 percent from its landing cost.

Kelegama said that according to the motor traders association the number of brand new vehicles imported had plunged to 15,460 in 2008 from 25,382 imported in 2006.

“This year it is estimated to b