The International Monetary Fund (IMF) has called for more public awareness on the need for tax reforms in Sri Lanka.
In its country report on Sri Lanka, the IMF notes that VAT reforms introduced in 2016, including the tax rate increase from 11 per cent to 15 per cent and the removal of number of exemptions, despite the stiff opposition by some segments in the society, signify the authorities’ commitment to reforms under the ongoing revenue based fiscal consolidation process.
“Our authorities accept the fact that more public awareness is necessary to sensitize the general public about the need and future benefits of tax as well as other reforms. While consolidating the VAT reforms further, the new Inland Revenue Act (IRA), which has been drafted with TA from the Fund and submitted to Parliament on July 04, 2017, is expected to play a catalytic role in transforming Sri Lanka’s income tax system by providing clarity, simplicity and administrative convenience while increasing tax compliance and improving tax administration further,” the IMF said.
The IMF also noted that the introduction of compliance strategies for VAT and corporate personal income taxes (on-going), risk-based VAT audits and roll out of the Revenue Administration Management Information System (RAMIS) at the Inland Revenue Department (IRD), which automates the tax collection process, will strengthen tax administration further.
The IRD is doing preparatory work to implement the new IRA with the support of IMF, particularly to improve public awareness of the new revisions to ensure smooth transition to the new income tax system.
The newly rolled out Integrated Treasury Management Information System (ITMIS) at the Ministry of Finance (MOF) will be operationalized beginning in 2018, automating the key functions related to public financial management system in Sri Lanka.
The IMF also said that efforts are being made to manage the economic and social implications of the two natural disasters, drought and floods, that occurred in the first half of 2017, which had an adverse impact on this year’s growth.
These have had some impact on the government budget as well. Additional expenditure will be required for reconstruction and rehabilitation activities, particularly for the infrastructure and houses damaged due to the most recent floods as well as for the provision of assistance to the people affected by the severe drought in some parts of the country. Policies to better manage climate related adversities are being seriously considered by the authorities as it appears that the country has increasingly become vulnerable to devastating natural disasters.