Tax by choice, not force: Can Sri Lanka make the shift?

What starts as isolated tax evasion gradually becomes socially tolerated behaviour. The danger lies not only in the revenue lost, but in the damage done to public trust. When citizens believe the system is unfair, voluntary compliance becomes increasingly difficult to achieve. This is precisely why governments around the world continue to invest in enforcement measures

When Sri Lankans speak about taxes, the conversation is rarely comfortable. For many, taxes represent a deduction from hard-earned income, an unavoidable obligation that arrives with little enthusiasm. But taxation remains one of the most important pillars of any functioning society. Every public hospital that treats a patient, every child who attends a Government school, every road repaired after a flood, and every pension paid to a retiree depends on revenue collected by the State. Without taxes, governments simply cannot function.

In recent years, there has been growing discussion about the need to strengthen voluntary tax compliance in Sri Lanka. The idea is simple and attractive. Citizens and businesses should willingly pay taxes because they understand their responsibility to society and trust that their contributions are being used wisely. Such a system reduces administrative costs, minimises disputes between taxpayers and authorities, and creates a healthier relationship between citizens and the State.

In theory, it sounds like the perfect solution. In practice, however, there is a significant challenge. Sri Lanka cannot afford to wait for a culture of voluntary compliance to emerge on its own.

Countries that enjoy high levels of voluntary tax compliance today did not reach that position overnight. Their tax cultures evolved gradually through decades of institutional development, public education, economic stability, and consistent governance. Citizens learned to trust public institutions because they saw results. They experienced reliable public services, transparent administration, and systems that treated taxpayers fairly. Over time, paying taxes became a social norm rather than an obligation imposed through fear.

Sri Lanka’s reality is very different. The country is still recovering from one of the most severe economic crises in its history. Government finances remain under pressure. Public debt obligations must be met. Essential services must continue to operate. Schools cannot close their doors while waiting for taxpayer attitudes to improve. Hospitals cannot suspend treatment until trust levels rise. Public servants, security personnel, and social welfare recipients depend on Government funding every month. Simply, Government requires revenue today.

A Government facing immediate financial obligations cannot rely on hope as a revenue strategy. When tax collections fall short, difficult choices quickly emerge. Authorities may resort to borrowing, increasing public debt and passing financial burdens to future generations. They may reduce expenditure, often affecting essential public services that citizens rely upon. In some circumstances, governments may adopt policies that contribute to inflation, increasing the cost of living for ordinary families already struggling with economic pressures. The consequences are felt not in Government offices, but in homes, schools, hospitals, and communities across the country.

One of the less discussed problems associated with weak tax compliance is the growing sense of unfairness it creates among those who do pay. In many developing economies, a relatively small group of taxpayers contributes a substantial share of total revenue. Meanwhile, large sections of economic activity remain outside formal reporting systems. Cash transactions go unrecorded. Income is underreported. Some individuals and businesses benefit from public services while contributing little or nothing toward their maintenance.

This imbalance creates frustration among compliant taxpayers. They begin to question why they should continue fulfilling their obligations when others appear to escape responsibility without consequence. Once such perceptions become widespread, compliance begins to erode further. What starts as isolated tax evasion gradually becomes socially tolerated behaviour.

The danger lies not only in the revenue lost, but in the damage done to public trust. When citizens believe the system is unfair, voluntary compliance becomes increasingly difficult to achieve.

This is precisely why governments around the world continue to invest in enforcement measures. Audits, investigations, compliance monitoring, legal action, and penalties are often portrayed negatively, but their primary purpose is to protect fairness within the tax system. Honest taxpayers expect governments to ensure that everyone contributes according to the same rules. Without effective enforcement, compliant citizens may feel abandoned, while deliberate evaders gain an unfair advantage.

But enforcement comes with its own costs. Tax investigations require skilled personnel, modern technology, legal resources, and administrative capacity. Governments often spend considerable amounts identifying, investigating, and recovering revenue that should have been paid voluntarily. Resources devoted to chasing non-compliance are resources that could otherwise be directed toward improving taxpayer services, upgrading infrastructure, or strengthening public institutions.

This is why economists consistently describe voluntary compliance as the most cost-effective form of revenue collection. A citizen who willingly pays taxes costs far less than one who must be identified, audited, investigated, and prosecuted.

At the heart of this issue lies one of the most important factors influencing tax behaviour: trust.

People are generally more willing to contribute when they believe their contributions are making a difference. Taxpayers who see quality public services, transparent governance, and responsible spending are more likely to view taxation as an investment in society rather than a financial burden. Conversely, perceptions of corruption, waste, inefficiency, or poor service delivery can weaken the willingness to comply.

This creates a cycle that many developing countries struggle to escape. Low trust leads to lower compliance. Lower compliance reduces Government revenue. Reduced revenue limits investment in public services. Poor public services further weaken trust. Breaking this cycle requires commitment from both governments and citizens.

The challenge facing Sri Lanka, therefore, is not choosing between voluntary compliance and enforcement. It is finding the right balance between the two. Enforcement is necessary to protect fairness and maintain revenue in the short term. Voluntary compliance is essential for long-term sustainability. One provides immediate stability, while the other builds future resilience.

The country’s path forward must involve strengthening institutions, improving transparency, simplifying tax procedures, investing in digital systems, and expanding taxpayer education. Citizens should be able to clearly understand how taxes are used and why their contributions matter. Equally important, taxpayers must feel confident that the rules apply fairly to everyone, regardless of status, influence, or economic position.

Building a strong tax culture will take time. Trust cannot be manufactured overnight, nor can public attitudes be transformed through legislation alone. But waiting passively is not an option. The economy cannot pause while society gradually develops a stronger sense of tax responsibility.

In theory, it sounds like the perfect solution. In practice, however, there is a significant challenge. Sri Lanka cannot afford to wait for a culture of voluntary compliance to emerge on its own

Sri Lanka’s future depends on creating a system where compliance is encouraged by trust, supported by fairness, and reinforced by effective administration. Until that future is fully realised, the country must continue balancing voluntary compliance with responsible enforcement.

After all, taxation is not merely about collecting revenue. It is about sustaining the institutions, services, and opportunities that hold a nation together. More importantly, it is about recognising that national development is a shared responsibility, one that neither governments nor citizens can carry alone.

(The author is an independent researcher)