Rs. 57 b ‘duty free’ ride for public servants’ vehicles

The Government has forgone a staggering Rs. 57 billion in revenue during the past two years in granting duty free concessions for import of vehicles for public servants.

The hefty sum was revealed in the Central Bank’s 2012 Annual Report released on Tuesday.

It said according to the Ministry of Finance and Planning estimates, the Government had forgone Rs.38.6 billion due to the exemptions of relevant taxes on vehicles procured by public servants on concessionary duty terms in 2012 and in the previous the figure is estimated at Rs. 18.3 billion.

Additionally, the Government had also forgone nearly Rs. 20.8 billion due to the VAT exemptions given to specified projects [the VAT on specified projects under sections c(xxiii) and f(ii) of the exemption schedule of the Value Added Tax Act No. 14 of 2002 and respective amendments thereto] last year whilst the figure in 2011 was Rs. 8.5 billion.

The Central Bank said total Government revenue as a percentage of GDP declined significantly to 13.0% in 2012 compared to 14.3% recorded in the previous year and 14.7% projected in the budget entirely due to decline in tax revenue as a percentage of GDP.

Concessions apart, the decline in imports especially consumer goods, subdued domestic economic activities also contributed to lower revenue performance.



However, in nominal terms Government revenue increased by 5.7% to Rs. 987.8 billion during the year from Rs. 934.8 billion in the previous year.

The Central Bank said in order to address the issues relating to Government revenue, committed efforts would be required in the near future through the existing tax structure by strengthening the collecting process in revenue agencies and improving tax administration while improving the financial viability of State-owned enterprises to reduce their reliance on the Government budget and to increase non tax revenue in the form of profits and dividend transfers.

Such an endeavour would help generate revenue surpluses which could be used for capital expenditure, thereby reducing debt financing, the Bank’s 2012 Annual Report added.

Tax revenue as a percentage of GDP continued to decline to 11.1% in 2012 from 12.4% in 2011, although in nominal terms it increased by 4.0% to Rs. 845.3 billion.

Total tax revenue was 84.5% of the budgetary target for 2012 and the shortfall was mainly due to the reduction in revenue from VAT on imports, import duties, ESC and excise tax on motor vehicles. It was evident that the indirect taxes remained the major source of tax revenue in 2012 accounting for 79.6% of the total tax revenue, compared to 80.6% in 2011.

The share of income tax revenue in total revenue increased to 20.4% in 2012 from 19.4% in 2011. Revenue from income taxes as a percentage of GDP declined marginally by 0.1% to 2.3% in 2012, although in nominal terms, it increased by 9.7% to Rs. 172.6 billion from Rs. 157.3 billion in 2011. The notable increase in the collection of withholding taxes contributed to the improvement in income tax revenue in 2012.

 Revenue from withholding tax grew significantly by 56.2% to Rs. 59.6 billion in 2012, reflecting an increase in the volume as well as the maturity structure of new Treasury bond issues, higher borrowings through rupee denominated instruments and relatively high interest rates prevailing in the domestic market, compared to the previous year. Corporate and non corporate tax revenue increased only marginally due to lower than expected revenue collected particularly from banking and financial services and the external trade activities.

The Pay-As-You-Earn (PAYE) tax collection declined marginally during the year.

Revenue from the ESC declined significantly by 30.3% reflecting the simplification of the ESC, exemptions and the increase in the quarterly threshold to Rs. 50 million from Rs. 25 million. Revenue from VAT as a percentage of GDP declined significantly to 2.7% in 2012 compared to 3.3% in 2011 and 3.5% expected in the budget.

The decline in revenue from VAT in 2012 was mainly due to the granting of exemptions, decline in imports as a result of the policy measures introduced in early 2012 and subdued domestic economic activity.

In nominal terms also, revenue from VAT in 2012 declined by 5.0% to Rs. 204.8 billion from 215.6 billion in 2011 mainly due to a reduction of import related VAT collection. Consequently, the contribution from VAT revenue to total tax revenue declined to 24.2% in 2012 from 26.5% in 2011 and 30.4% in 2010. VAT on domestic goods and services increased by 2% to Rs. 105.3 billion. VAT on imports declined by 11.4% to Rs. 99.4 billion mainly due to a decline in imports, specially motor vehicles, and the granting of exemptions to imports related to strategic investment projects. Further, the contribution from VAT on domestic goods and services to total tax revenue marginally declined to 12.5% in 2012 from 12.7% in 2011.

Revenue from excise duties as a percentage of GDP declined to 2.5% in 2012 from 2.8% in 2011 due to a decline in excise duty collected from motor vehicle imports. However, in nominal terms revenue from excise duties increased by 3.2% to Rs. 191.9 billion in 2012 from Rs. 186 billion in 2011. Meanwhile, the share of excise duties in total tax revenue declined to 22.7% in 2012 from 22.9% in 2011. Revenue from excise duties on motor vehicles declined by 12% to Rs. 46.5 billion from Rs. 52.8 billion recorded in the previous year.

During the year, revenue from excise duties on liquor increased by 8.7% to Rs. 60.1 billion supported by the scaling up of excise duty rates on liquor and the higher production of malt liquor. Revenue from excise duties on cigarettes and tobacco increased by 7.9% to Rs. 53.6 billion in 2012, mainly due to the periodical upward revisions of excise duty rates during the year even though there was a decline in cigarette sales by 4.3% during the year. Excise tax revenue from petroleum imports increased by 26.7% during 2012, due to an increase in the importation of refined petroleum products.

Revenue from NBT as a percentage of GDP remained at 0.5% in 2012, whereas NBT collection in nominal terms increased by 8.6% to Rs. 38.7 billion from Rs. 35.7 billion in 2011. NBT on domestic goods and services increased by 21.2% to Rs. 23.1 billion mainly due to improved performance in the construction and tourism industries. Further, increased registration of wholesale and retail businesses liable for NBT contributed to the growth in NBT collection during that period. However, with the negative growth in imports, NBT collected from imports declined by 5.8% to Rs. 15.7 billion in 2012.

Total revenue from import duties and the SCL as a percentage of GDP remained at 1.4% in 2012, although in nominal terms, it increased by 17.0% to Rs. 107.2 billion.

Although revenue from import duties was expected to increase by 23.4% as per the budget estimates for 2012, it declined by 3.3% to Rs. 73.5 billion due to the decline in imports from the second quarter of 2012. The share of import duties in total tax revenue came down significantly to 8.7% in 2012 from 9.3% in 2011.

The average customs duty rate, including SCL increased to 4.4% in 2012 from 4.1% in 2011. Further, revenue from import duties from motor vehicle imports declined significantly by 50% to Rs. 14.1 billion in 2012 from Rs. 28.4 billion in 2011 reflecting the lower growth in motor vehicle imports during the year due to the implementation of policy measures to curtail imports and the depreciation of Sri Lanka rupee.

Revenue from SCL increased significantly to Rs. 33.7 billion in 2012 from Rs. 15.6 billion recorded in 2011 with the imposition of SCL on several new commodities such as fish, soya bean oil, palm oil, sunflower oil and coconut oil. The share of SCL in total tax revenue increased significantly to 4.0% in 2012 from 1.9% in 2011.

Revenue from other taxes showed a mixed performance during 2012. Revenue from Port and Airport Development Levy (PAL) declined to 0.9% of GDP in 2012 from 1.0% of GDP in 2011. However, in nominal terms, it increased by 5.5% to Rs. 70.1 billion in 2012 from Rs. 66.4 billion in 2011 due to the wider tax base and the granting of fewer exemptions.

In nominal terms, revenue from Cess increased by 10.4% to Rs. 32.7 billion in 2012 from Rs. 29.6 billion in 2011. The introduction of Cess on several new items in early 2012 largely contributed to the higher Cess collection in 2012.

Revenue from the Telecommunications Levy increased significantly by 19.5% to Rs. 22.3 billion in 2012, from Rs. 18.6 billion in the previous year mainly due to an increase in the telephone density. Revenue from license fees and other taxes in nominal terms declined by 33.9% to Rs. 4.9 billion in 2012 from Rs. 7.4 billion in 2011.

Non tax revenue as a percentage of GDP remained at 1.9% in 2012 as in the previous year and it is significantly above the budgetary target. In nominal terms, non tax revenue increased by 16.7% to Rs. 142.5 billion in 2012 from Rs. 122.2 billion in 2011 mainly due to an increase in Central Bank profit transfers, which increased significantly by 95.5% to Rs. 43 billion in 2012.

Profits and dividend transfers from other State-owned enterprises increased by 36.1% to Rs. 46.8 billion in 2012 compared to Rs. 34.3 billion recorded in 2011. However, fees and charges which represented more than 18% of non tax revenue, declined significantly to Rs. 26 billion compared to Rs. 37.3 billion recorded in 2011 and Rs. 30.2 billion estimated in the budget.

Other non tax revenues such as social security contributions, interest and rent, also declined in 2012 in comparison to the previous year as estimated in the budget. The share of non tax revenue in total revenue increased to 14.4% in 2012 from 13.1% in 2011.