Financial Times

Govt. cash inflows far below target in 2004
A sharp decline in non-tax revenue and the inability to achieve certain anticipated tax revenue targets resulted in government cash inflows including grants falling to Rs 326 billion in 2004 as against the original estimate of Rs. 383 billion.

This has been revealed in the final budget position report for 2004 tabled in parliament by Minister of Finance and Planning Sarath Amunugama in terms of Section 13 of the Fiscal Management (Responsibility) Act No. 3 of 2003.“The main contributory factors for this deviation were the sharp decline in non-tax revenue and the non achievement of anticipated targets of certain tax revenue heads,” it said.

Total government revenue collection for 2004 amounted to Rs. 311.5 billion, up 12.6 percent over 2003. This was a 94 per cent achievement of the original budget estimates for the year. The tax and non-tax composition of the revenue were 90 percent and 10 percent respectively.

However, as a percentage of GDP, government revenue declined to 15.4 percent in 2004 from 15.7 percent in 2003. “The reduction in government revenue as a percentage of GDP in 2004 was due to a substantial decline in non-tax revenue,” the report said. “This is due to non-realization of government land sale and transfer of funds from dormant EPF accounts coupled with lower than expected profit transfers from the Central Bank.”
With the implementations of several policy measures in the second half of 2004, the tax revenue as a percentage of GDP increased from 13.2 percent in 2003 to 13.9 per cent in 2004 reversing the historical trend.

Income tax revenue declined to two percent of GDP from 2.2 percent in 2003.
Tax concessions, exemption and holidays have eroded the corporate tax base to a greater extent, the budget position report said. “Delays in enacting amendments to the legislation which hampered implementation of several measures contributed to the decline in income tax revenue. A further decline in income tax revenue was checked in 2005 budget by introducing measures to rationalizethe tax incentives and concessions.”

Value Added Tax (VAT) amounting to Rs. 120 billion was an increase of 24 percent over 2003, and an increase from 5.5 to 5.9 as a percentage of GDP.
The measures taken to improve VAT administration and refund mechanism contributed significantly for the improved revenue performance, the report said.

Excise taxes generated Rs. 66 billion compared to the original estimates of Rs. 59 billion and were a 29 percent increase over 2003. In GDP terms, excise taxes increased from 2.9 percent in 2003 to 3.2 percent in 2004.

Excise tax collection on liquor, cigarettes and petroleum products amounted to Rs. 14 billion, Rs. 23 billion and Rs. 14 billion respectively in 2004. “Increased production coupled with upward revisions in rates contributed to this enhancement in the excise tax revenue,” the report said.

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