Sri Lanka’s Treasury Secretary Dr. PB Jayasundera called on the private sector to stop corruption and pay taxes and work harder in order to transform Sri Lanka into a more vibrant economy where all citizens benefited from development, as government tax revenue continued to be on a declining trend despite efforts by the government to reduce tax rates and simplify the system.
Addressing a packed audience at the Colombo Hilton last week, where the Department of Inland Revenue organised its first-ever mid-year taxation seminar, the top public servant said tax rates were lower and more affordable than ever before while the tax system was simplified over the past three years, making it more predictable.
“The idea was to lower tax rates, simplify the system and broaden the tax base in order to increase revenue. We have done the first two, but without broadening the tax base lower tax rates are not feasible,” Dr. Jayasundera said.
In 2012, Sri Lanka’s revenue declined to 13 percent of GDP from 14.3 percent of GDP in 2011, mainly due to tax revenue declining from 12.4 percent of GDP in 2011 to 11.1 percent in 2012.
Revenue from VAT declined by 0.8 percent of GDP in 2012 compared to 2011 (3.5 percent to 2.7 percent of GDP), mainly due to many exemptions or zero ratings. Income tax declined from 2.4 percent GDP in 2011 to 2.3 percent of GDP in 2012 due to rate adjustments not being matched by broadening the tax base in 2012.
Dr. Jayasundera said businesses and banks should stop manipulating their books and provide accurate returns. He urged top professionals and every citizen earning more than 50,000 Sri Lankan rupees (US$388) a month to step forward and open a tax file and make their returns.
“Both the public and private sectors are liable to pay tax. Even politicians pay taxes. I live in this country, therefore I pay taxes,” he said.
“Paying taxes is a status. Some people enjoy status because they hold a certain position, they live in a particular area or house, drive an expansive car, where a suit or lead a certain lifestyle and have their hair done by a particular hairdresser.
“But paying taxes in an honourable status because they contribute to the existence of the government which provides law and order, welfare, infrastructure and all sorts of good things a country needs.
“I hope we develop a community where people pay their taxes. Banks and big firms must not manipulate their books, this must stop. Tax rates are low and the government has given you a fair deal. There is peace, development, stability and better prospects, what more can you ask for?
“Don’t talk about corruption. Instead, you should adopt best practices and remain honest. Stop corruption. You cannot clap with one hand. This is bad for the country. The private sector, the business chambers must be able to come forward say ‘we have not bribed anybody’.
“You have to do this and this would give the country are lot of credibility and the country would gain immensely,” Dr. Jayasundera told the large private sector gathering.
He said the government was committed to further simplify the tax system, provided the base was broad enough to bring in enough revenue.
“We will bring further simplicity to bring everybody in to the tax net. In fact, all those earning less than 50,000 rupees need not pay taxes, only those who can afford to so. It is worth paying taxes. The country is in a journey of rapid development.
“There are shortcomings but we are making progress. We have 95 percent electrification and roads are much better, maybe not up to everybody’s standards, but improving nonetheless. Quantify all these savings. The tax rate reductions have also generated significant savings to the private sector.
“The individual tax rate is low and reasonable. The corporate tax rate has come down from 37 percent to 28 percent. Tourism, construction and SMEs pay low rates. There are many other taxes that have been removed.
“We have improved in the World Bank Doing Business Index. The decades-long war is over. All this has created savings. Now, the private sector must invest and work hard in with an entrepreneurial spirit to transform this country,” Dr. Jayasundera said.
Inequality and injustice is huge in Sri Lanka because of massive tax evasions in the country, Senior Minister of Human Resources and Chairman Parliamentary Committee on Public Enterprises (COPE) D.E.W. Gunasekara said recently.
“Economic growth has doubled. The per capita income has doubled. But where is the evidence and can we see the results? Is it in the Treasury’s report or can we see an improvement in living standards?” the outspoken senior minister asked.
“The tax-to-GDP ratio is the lowest since independence and non-direct taxes account for the bulk of the government’s tax receipts. This shows that income disparity is huge. Inequality is rising and this is a huge injustice to the people of the country.”
The ratio for direct:in-direct taxation in Sri Lanka is close to 20:80.
“As long as the revenue from direct taxation remains low, this ratio will prevail and this in turn means that the bulk of the burden of indirect taxation will be felt by the poor people,” Dr. Saman Kelegama, Executive Director, Institute of Policy Studies told a recent forum. He said the ideal was a ratio of 40:60. (The Island/ANN)