WB suggests SL target high earners to boost tax revenue

Friday, 12 September 2025 00:22 - - {{hitsCtrl.values.hits}}

Word Bank Public Finance Review suggests SL should broaden tax net among high earners
Says targeting wealthier individuals more practical than attempting to enforce compliance across all taxpayers

A World Bank (WB) report released yesterday recommended that the Government could significantly boost tax revenues by focusing on improving compliance among higher-income earners, rather than across the entire income distribution.

According to the WB Sri Lanka Public Finance Review, raising compliance by just 20% could increase collections from personal income tax (PIT) by 36% and pay-as-you-earn (PAYE) tax by 18%, equal to 0.04% and 0.02% of GDP, respectively.

A more ambitious doubling of compliance would more than double revenues, with PIT rising 113% and PAYE 114%, equal to 0.11% and 0.09% of GDP.

The report argues that targeting wealthier individuals is more practical and effective than attempting to enforce compliance across all taxpayers. High-income groups account for larger earnings and face higher tax rates, so bringing them fully into the tax net could yield outsized returns.

“A system where higher-earning individuals are brought into the net first could increase revenues by 169% (PIT) and 75% (PAYE), respectively, as individuals in higher brackets earn more and are subject to higher rates,” the report said.

The WB report said Sri Lanka could strengthen compliance among high-net-worth individuals (HWIs) through a series of targeted measures. It noted that the Government has already set up a dedicated HWI unit within the large taxpayers division in 2023 under reforms linked to the International Monetary Fund (IMF) program, but stressed that regular collection of information and risk profiling of the largest HWIs will be critical.

The review highlighted the Inland Revenue Department’s constraints in accessing third-party data—particularly international database services that can help uncover offshore assets and structures. It said such access would require stronger data security protocols within the Department.

The report also pointed to the need for measures that can influence taxpayer behaviour, including improving transparency, strengthening audit and enforcement capabilities, and enhancing tax morale. It added that beneficial ownership transparency could further deter tax evasion among HWIs.