Optimising tax revenue and encouraging better tax compliance
Friday, 18 December 2015
In 2010, Dr. Saman Kelegama, Executive Director of the Institute of Policy and a member of the Taxation Commission was quoted in the media as stating: “The tax system is not delivering the potential revenue in Sri Lanka. As income increases in a country, the revenue also increases although the rate of increase will decline after some time. This is not happening in Sri Lanka. Sri Lanka’s per capita income has increased from $ 720 in 1995 to $ 2053 in 2009 but our tax revenue has declined from 20.4% GDP to 14.6% GDP during this period. Almost 90% of revenue comes from taxes (10% is accounted by non-tax sources). Tax elasticity measures the extent to which the tax system generates revenue in response to increase in income without change in the tax rates. This is less than unity or one and not a healthy sign. The key reason for this is that the tax base has not broadened in line with the increase in income or economic activities. The reason for the weak tax base is the multitude of tax exemptions, tax evasion, many discretionary tax measures in operation, and weak tax administration.”
Friday, 18 December 2015In 2010, Dr. Saman Kelegama, Executive Director of the Institute of Policy and a member of the Taxation Commission was quoted in the media as stating: “The tax system is not delivering the potential revenue in Sri Lanka. As income increases in a country, the revenue also increases although the rate of increase will decline after some time. This is not happening in Sri Lanka. Sri Lanka’s per capita income has increased from $ 720 in 1995 to $ 2053 in 2009 but our tax revenue has declined from 20.4% GDP to 14.6% GDP during this period. Almost 90% of revenue comes from taxes (10% is accounted by non-tax sources). Tax elasticity measures the extent to which the tax system generates revenue in response to increase in income without change in the tax rates. This is less than unity or one and not a healthy sign. The key reason for this is that the tax base has not broadened in line with the increase in income or economic activities. The reason for the weak tax base is the multitude of tax exemptions, tax evasion, many discretionary tax measures in operation, and weak tax administration.”