Taxation in Sri Lanka

Constituents of Sri Lankan taxation receipts for the tax year 2018.

  Personal income tax (16.0%)
  VAT (24.0%)
  Excise tax (25.0%)
  Tariffs (16.0%)
  Other taxes (19.0%)

Taxation in Sri Lanka mainly includes excise duties, value added tax, income tax and tariffs.[1] Tax revenue is a primary constituent of the government's fiscal policy. The Government of Sri Lanka imposes taxes mainly of two types in the forms of direct taxes and indirect taxes. As of 2018 CBSL report, taxes are the most important revenue source for the government, contributing 89% of the revenue. The tax revenue to GDP ratio is just about 11.6 percent as of 2018, which is one of the lowest rates among the upper-middle income earning countries.[2] At present, the government of Sri Lanka also face major challenges regarding the continuous budget deficits where government expenditures have exceeded the government tax revenue.[3]

Indirect taxes in the forms of excise duties, VAT and tariffs are the key contributors to the government tax revenue with 74% while direct taxes including income tax, Pay-as-you-earn tax and Economic Service Charge contribute only around 9%.[4]

However the tax regime is expected to witness major changes following the 2019 Sri Lankan presidential election which took place on 16 November 2019.[5][6] The Maithripala Sirisena led government also announced that the carbon tax will be removed with immediate effect as of 1 December 2019.[7] In November 2019, newly elected President Gotabaya Rajapaksa approved mandate to abolish taxes such as PAYE, NBT, Withholding tax, Capital Gain tax, Bank Debit tax and to reduce VAT tax rate from 15% to 8%.[8][9] Tax evasion is a rampant and prevalent issue in Sri Lanka.[10]

  1. ^ "Types of Taxes – DPR Tax Sri Lanka". Retrieved 2019-11-04.
  2. ^ "Tax issues - Current system not delivering needed revenue". www.sundaytimes.lk. Retrieved 2019-11-04.
  3. ^ "Importance and Issues of Taxation in Sri Lanka | Colombo Business Journal". Retrieved 2019-11-04.
  4. ^ "An overview of Sri Lanka's taxation framework". Oxford Business Group. 2016-05-17. Retrieved 2019-11-04.
  5. ^ "I will change the tax system : Sajith Premadasa - Sri Lanka Latest News". Sri Lanka News - Newsfirst. 2019-10-21. Retrieved 2019-11-04.
  6. ^ "Gotabaya says will abolish PAYE tax, slash Sri Lanka VAT, boost biz environment". EconomyNext. 2019-10-25. Retrieved 2019-11-04.
  7. ^ "Sri Lanka scraps controversial carbon tax". EconomyNext. 2019-10-27. Retrieved 2019-11-04.
  8. ^ "Sri Lanka : President decides to reduce VAT and eliminate several taxes to provide relief for the people". www.colombopage.com. Retrieved 2019-11-28.
  9. ^ LBO (2019-11-27). "Sri Lanka announces tax reliefs; cuts VAT to 8-pct, removes PAYE, WHT & Capital Gains Tax". Lanka Business Online. Retrieved 2019-11-28.
  10. ^ "Massive tax evasion aggravates economic stress".

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