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Prof. Mick Moore
By Devan Daniel
Prof. Mick Moore said Sri Lanka’s tax administration is two decades behind many African countries and must shift its focus to large-scale evaders if it is to close the revenue gap, at the ‘Debt and Tax Dialogue’ forum organised by Arutha Research recently.
“Customs in Sri Lanka, in terms of its organisation and its work methods, is about 20 years behind many African countries. It’s not very nice to hear, but to be honest, the Inland Revenue Department (IRD) is pretty much in that same ballpark. It’s not that far away,” he said.
He pointed to the Colombo Municipal Council, where only 20,000 of 110,000 businesses pay local property taxes, as an example of the scale of non-compliance, while the IRD remains constrained by outdated practices, weak recruitment, and poor training.
Prof. Moore is a political economist and a Professorial Fellow at the Institute of Development Studies. His work focuses on taxation and governance in developing countries like Sri Lanka.
From 2010 to 2020, he served as the Founding Chief Executive of the International Centre for Tax and Development.
The IRD remains under-equipped to address the scale of tax evasion and avoidance despite a modest recovery in revenue collection, according to Prof. Moore.
The Finance Ministry has said that the IRD had achieved 53% of its full-year target of Rs. 2.2 trillion during the first seven months of the year, while Customs had achieved 57% of its full-year Rs. 2.1 trillion target, and the Excise Department achieved 52% of its Rs. 839 billion full-year target. Revenue from Excise duty on motor vehicles surged 528% to Rs. 193 billion in the first seven months of 2025, up from Rs. 31 billion a year earlier.
But Prof. Moore cautioned that, although the tax-to-GDP ratio has risen to about 15.1%, broadly in line with International Monetary Fund (IMF) targets, sustaining this will be difficult without structural reforms.
“It won’t stay at that level because some of that is by raising rates, but some of it is the bonus from delayed motor vehicle imports. So the Government is going to have to do more just to keep it at 15%. And I’m sure they will do more, and there’s plenty of scope.”
He highlighted dividend income as an area where under-taxation persists.
“Those of you who are privileged enough to maybe own part of a private company, and you pay yourself in lots of dividends, you’re paying a withholding tax of 15%, and that’s fine. In other words, you’re paying 15% income tax on what could be very high earnings. So, you know, please enjoy it while it lasts, but I hope the Government will pick that up quite soon.”
He stressed that the IRD’s weakness is not only political but also administrative. Recruitment and training, he argued, are the most serious challenges. Hiring is constrained by laws, procedures, and inter-agency arrangements that cannot be easily changed, even by the Finance Minister.
While tax administration does not require top talent, it does need staff with basic competencies, particularly in areas such as numerical analysis. At present, the system does not reliably attract or prepare such candidates.
“The current exams set for IRD entry, I won’t talk in detail, but I venture to say they are almost completely inappropriate to the job of being a tax auditor, and the onus is then on the IRD to do better and more internal training with the recruits it has,” Prof. Moore said.
On current practices, he said too many IRD staff spend their time on clerical checks such as matching figures, resolving discrepancies, and verifying supporting documents.
“If the IRD is to be more efficient, the typical tax auditor is going to be spending half her day quickly going through a whole lot of tax returns and saying, that seems fine, that seems fine, that seems fine, and spending the other half of the day auditing particular returns that have been identified through statistical analysis as possibly needing real attention.”
That shift, he said, cannot happen without investment in skills and technology. “We can’t get to that, or it’s going to be very difficult to get to that position, until the IRD has more competent people in IT and computers and in data analysis. Because, you know, this is all data analysis. It’s not theoretical stuff. It’s adding together numbers.”
At the local level, non-compliance is equally severe. “People don’t want to pay their taxes. A Colombo Municipal Council official says that they reckon there are 110,000 commercial establishments within the Colombo Municipal Council, of which 20,000 or so actually pay their assessment rates.”
Prof. Moore suggested that property tax reform should begin with larger urban councils, supported by central subsidies and strong local leadership, to create a cycle of higher revenue and improved services.
On the enforcement strategy, he urged a focus on larger taxpayers. “We know there are a lot of people who have very big businesses, who have storefronts in Pettah. Those are the people we want. If they are not paying taxes, they need to be tracked down.”
However, Prof. Moore warned that no tax agency should get seduced into the idea that they are somehow going to physically hunt down people who are not paying taxes. “That used to be the way things were done in some countries. It’s thankfully disappearing.”
He added that door-to-door raids are ineffective. “If you go with a large squad of Policemen and freedom to get into Pettah and go block by block and identify people and take their details, I can generate for you a whole lot of junk data that you could not use. And all you do is waste a lot of resources and time.”
Prof. Moore said small, informal operators should not be the focus. “When it comes to the informal sector, for a small person who is earning a lot of money, as a tax collector, I don’t care. I don’t care if you don’t pay taxes. It’s the big areas that we really want to look for. So I think we have to stay focused on the big people and forget the little ones.”
His central message was that Sri Lanka’s revenue problem is not about whether rates are too high or too low. It is about an administration that lacks the capacity to enforce the system it already has.
Without better-trained staff, smarter audits, and a sharper focus on large-scale evasion, the IRD will remain unable to close the country’s tax gap.
