The Sri Lankan government, grappling with ways to increase revenue through the 2010 budget while maintaining the deficit at 8% of GDP, is likely to introduce new taxes while reducing some of current ones, outside the budget. Some taxes through the budget is also being contemplated, official sources said.
|Tax officers to visit defaulting firms from Monday
The Inland Revenue Department (IRD) is to introduce a 3-pronged strategy to increase tax compliance to between 70 % and 80% from a current 40 % in the next six months with the intention of reaching targetted revenue of Rs.124 billion, new Tax Chief K.M.S. Kandegedera said.
He told the Business Times in an interview that officials will visit companies which have failed to submit returns and defaulted taxes or with huge arrears running up to millions of rupees. This initiative will be implemented from tomorrow (Monday). Legal action will be taken against tax defaulters as a final resort, he said.
Around 50% of local companies of certain categories have failed to furnish tax returns and this is a serious matter, he said adding however that all the big companies are in full tax compliance. The IRD is maintaining 24,278 tax files of resident and non resident companies at present and plans to widen the tax net to increase this number as there is a boom in the tourism, construction, transport, media, advertising and telecommunication sectors. There are a total number of 825,045 taxpayers. He disclosed that the department has been able to collect Rs.111.2 billion for the first five months this year compared to Rs.105.6 billion in the same period last year. The Inland Revenue Department has devised plans to increase its cadre. Increasing the units and providing facilities for staff would be one of the department's main priorities, he added. He said that the administrative regulations of the department will be amended soon to ease promotions and appointments, and provide more avenues for suitable and qualified staff members to climb the ladder in their respective fields.
“There is a dilemma as to ways of raising revenue,” one source said. Some of the taxes are likely to be increased to a considerable level with the inclusion of tax recommendations of the Presidential Tax Commission in the 2010 budget on June 29 contrary to earlier plans not to impose new taxes through the budget, the source said.
The Tax Commission has final ized its recommendations and its report will be presented to the President shortly. IMF officials have also been apprised regarding this action, a senior Ministry official said. The Treasury is now in the process of allocation and accounting of financial provisions for expenditure heads according to the composition of new ministries, he revealed.
He added that the reduction of taxes on imported items like vehicles, mobile phones and wrist watches will pave the way towards increasing imports and the demand for such items.
This will increase state revenue, as well as the demand for the US dollar but it will depreciate the rupee which is unavoidable, he added. Sri Lanka has US$5 billion in foreign reserves at present and this will help to maintain the balance of trade, he added.
Meanwhile, IMF’s Country Representative for Sri Lanka, Koshy Mathai, says that the revised taxes this week are important steps toward reforming the tax system. “While the measures could result in some additional imports and thus increased demand for foreign exchange, this shouldn't be a problem, we think, since the reserves position at the Central Bank is quite healthy,” he told the Business Times.
He said the things seem to be moving in the right direction. “Aside from the positive moves on taxes and in other economic areas, we understand that the government intends to bring the budget deficit down substantially, and not on the basis of unrealistic revenue forecasts or undesirable cuts in badly needed capital expenditure, but rather mostly through a rationalization of recurrent spending. All in all, we're encouraged by the government's policies,” he added.