By Waruni Paranagamage
The future Government should focus on fiscal policy measures to boost tax revenue than on monetary policy components to reduce the budget deficit, a top official of the Central Bank urged this week.
Speaking on ‘Post-War, Post-Election: Is the Sri Lankan economy ready to make the much-needed break?’ at the Ceylon Chamber of Commerce, Central Bank Deputy Governor Dr. Nandalal Weerasinghe said that due to low revenue mobilisation, the budget deficit in 2014 was 5.7% of GDP, slightly higher than the 5.4% recorded in 2013.
He asserted that the tax revenue collection as a percentage of GDP has continued to decline over the years as a result of adopting several measures to simplify the tax system.
“The weakness is that the government will not have sufficient tax collection to finance the basic expenditure on health and education. Without more revenue it would be a challenge for the government to continue public investments. Hence revenue is the big issue in Sri Lanka,” Weerasinghe added.
The 2014 Central Bank report shows that several measures were introduced in 2014 to streamline the tax system, while rationalising tax exemptions and concessions to raise both direct and indirect tax revenue. However, government revenue declined to 12.2% of GDP due to shortfall in tax revenue in 2014.
The Deputy Governor said that further simplification of the tax system, broadening the tax base by improving direct taxation and minimising tax exemptions while strengthening tax administration were some of the measures to improve revenue collection.
“The 2015 budget introduced simplification and rationalisation of the tax system with an aim to enhancing government revenue and take further measures to reduce overdependence on indirect taxation.”
In 2014 some measures were taken to enhance the efficiency of tax system by simplifying the existing tax structure, particularly transforming multiple taxes on imports to a single tax, strengthened processeswere introduced for tax administration of revenue collection agencies through automation of activities, improved auditing and risk management and unique identification numbers were introduced for taxpayers to link external interfaces.
“Successful governments which have been working with local and international experts are trying to further simplify tax revenues, total tax revenues, to look at tax assumptions. In the Doing Business Index, the one area they measure is payment of taxes. Hence we need to do lot of reforms and inputs in tax collection to increase GDP revenue,” Weerasinghe asserted.