Verité Director Research Deshal de Mel yesterday said revenue enhancement measures remained critical for the upcoming 2022 Budget.
He said that as the Sri Lankan economy was still recovering from the impacts of the pandemic as were others around the world, the Government must be careful not to disincentivise investment and economic activity with intense measures.
Responding to a query by the Daily FT, de Mel said that the Government should look at a program over the medium-term to gradually raise revenue to stand in line with peer economies. The potential upside of growing tax revenue is not very high given the economy is still in recovery mode, he said.
De Mel stressed that revenue enhancement plans must be carefully calibrated to sustain economic activity in the short-term. Potential activities he pointed to included reducing the VAT threshold and personal income tax over the first year to a lower level that could in turn improve the tax base.
There could be reintroduction of withholding tax on interest income and PAYE tax whereby Inland Revenue could simplify its collection process, as opposed to expecting individuals to come forward.
He also spoke of indexation of alcohol and tobacco taxes in line with GDP to ensure a steady stream of revenue and averred that an immediate increase on corporate income tax could impact investment. Concessionary tax rates for corporates should also be consolidated to a three-tier rate, he added.