Niroshan resigns from Vasu Democratic Left Front – Sri Lanka Mirror – Right to Information. Force for Change

There are growing concerns that the International Monetary Fund (IMF) will advocate for an increase in VAT rates to plug the huge revenue deficit Sri Lanka currently faces.

The latest data showed that tax revenues in the year to mid-August fell short of expectations, exacerbating the government’s financial woes.

The problem is exacerbated by high levels of corruption, especially among small and medium-sized local taxpayers, and by inefficient tax collection by officials.

Matters were further complicated by the inability to issue tax assessment reports starting in the 2018/2019 tax year due to a glitch in the RAMIS system.

This technical difficulty has led to taxpayers being reluctant to comply with their obligations due to the widespread perception that there is no immediate penalty or any punishment for non-compliance.

Due to factors such as backlogs in tax audits and weak law enforcement, the tax collection and management environment continues to deteriorate.

The IMF’s commitment to fighting corruption should be of great concern, as its presidency has yet to take significant and satisfactory action against corrupt officials.

Unit revenues for both survey units and high net worth taxpayers are low, although it is possible to generate more revenue if officials are (partially) controlled by top management.

Despite recent leadership action by some regional tax officials, the core problems of corruption and mismanagement have yet to be adequately addressed.

In this context, the effectiveness of the current policy is questioned, as is the potential impact of further increases in VAT rates on businesses and individual taxpayers.

There are growing concerns about whether higher VAT rates will be enough to plug the revenue gap in the face of these difficulties, and whether broader reforms are needed to strengthen tax collection and enforcement.

This situation highlights the urgent need to take sensible measures to regain the trust of taxpayers and ensure that tax revenues meet the needs of the national budget.

In addition, the efficiency and capabilities of the top management team need to be assessed as they directly impact the overall performance of the tax department.