Taxation in Sri Lanka

Last updated

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

Contents

  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]

Income taxes

As of 2016, income tax contributes to 15% of the overall government tax revenue. The highest ever income tax proportion to the tax revenue was recorded at 35% in 2007. However the income tax contribution, started to decline from that point. The income taxes are collected by the Department of Inland Revenue under the provisions of Inland Revenue Act, no 24 of 2017. [11]

In addition to the income tax, PAYE tax is also charged by the Department of Inland Revenue in accordance with the terms of Section 114 of Inland Revenue Act no 10 of 2006 or Section 83 of the Inland Revenue Act No 24 of 2017. [12] However the new amendments which were published on 19 December 2022 have increased the PAYE tax rates significantly and reduced the annual personal income reliefs to 12 million rupees. [13]

VAT

VAT remained as the main contributor to the government revenue until 2014, later it was surpassed by the excise duty. [14] VAT is imposed on mainly goods and services under the provisions of Act no 14 of 2002. [15]

Excise duty

The tax became the most significant tax from 2015. It is imposed mainly on the production of drugs, alcohol, petroleum products and motor vehicles. [16]

Tariffs

Until 2019, tariffs provided the third major contribution to the government tax revenue with nearly 20%. [17] However in 2019, the Sri Lankan government implemented measures to curtail import expenditure and to promote exports in order to avoid the trade deficit. [18] Subsequently, the import levy imposed on the imports also reduced from 19% to 16%. Tariffs are highly imposed on imported motor vehicles at present. However Duty-free permit, a tax concession is also granted specially for the government officials to import vehicles into Sri Lanka.

Maral tax

Maral prevailed in Sri Lanka as a quite unpopular tax during the ancient times. It was imposed on the properties owned by those who were dead. The tax system was scrapped during the British rule in the country. [19] [20]

Complications and issues

Sri Lankan tax system is regarded as one of the most complicated tax structures in the world. Inefficiencies in the administration of taxes, social attitudes among general public about the tax system, lack of knowledge among the public on their obligation are some of the issues which have made severe problems to the government when financing the budgetary expenditures. In addition, the tax system of the country is also treated as inequal. [21]

Related Research Articles

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.

<span class="mw-page-title-main">Taxation in the United States</span>

The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP. The United States had the seventh-lowest tax revenue-to-GDP ratio among OECD countries in 2020, with a higher ratio than Mexico, Colombia, Chile, Ireland, Costa Rica, and Turkey.

A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may include withholding the employee portion of insurance contributions or similar social benefit taxes. In most countries, they are determined by employers but subject to government review. PAYE is deducted from each paycheck by the employer and must be remitted promptly to the government. Most countries refer to income tax withholding by other terms, including pay-as-you-go tax.

Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are not uniform throughout the United States. Certain goods, such as gasoline, diesel fuel, alcohol, and tobacco products, are taxed by multiple governments simultaneously. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such often remain "hidden" in the price of a product or service, rather than being listed separately.

<span class="mw-page-title-main">Taxation in the United Kingdom</span>

Taxation in the United Kingdom may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.

A tax refund or tax rebate is a payment to the taxpayer due to the taxpayer having paid more tax than they owed.

<span class="mw-page-title-main">Indirect tax</span> Type of tax

An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.

<span class="mw-page-title-main">Taxation in New Zealand</span> Overview of taxation in New Zealand

Taxes in New Zealand are collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, and on the supply of goods and services. Capital gains tax applies in limited situations, such as the sale of some rental properties within 10 years of purchase. Some "gains" such as profits on the sale of patent rights are deemed to be income – income tax does apply to property transactions in certain circumstances, particularly speculation. There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service. There is no social security (payroll) tax.

Taxation represents the biggest source of revenues for the Peruvian government. For 2016, the projected amount of taxation revenues was S/.94.6 billion. There are four taxes that make up approximately 90 percent of the taxation revenues:

Under Article 108 of the Basic Law of Hong Kong, the taxation system in Hong Kong is independent of, and different from, the taxation system in mainland China. In addition, under Article 106 of the Hong Kong Basic Law, Hong Kong has independent public finance, and no tax revenue is handed over to the Central Government in China. The taxation system in Hong Kong is generally considered to be one of the simplest, most transparent and straightforward systems in the world. Taxes are collected through the Inland Revenue Department (IRD).

The Tanzania Revenue Authority (TRA) is the government agency of Tanzania, charged with the responsibility of managing the assessment, collection and accounting of all central government revenue in Tanzania.

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

<span class="mw-page-title-main">Excise</span> Goods tax levied at the moment of manufacture rather than sale

An excise, or excise tax, is any duty on manufactured goods that is normally levied at the moment of manufacture for internal consumption rather than at sale. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.

In Bangladesh, the principal taxes are Customs duties, Value-Added-Tax (VAT), supplementary duty, income tax and corporation tax.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

The policy of taxation in the Philippines is governed chiefly by the Constitution of the Philippines and three Republic Acts.

<span class="mw-page-title-main">Taxation in South Africa</span>

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

<span class="mw-page-title-main">Value-added tax</span> Form of consumption tax

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the person who ultimately bears the burden of the tax is not necessarily the same person as the one who pays the tax to the tax authorities.

Kenya's taxation system covers income tax, value-added tax, customs and excise duty. The regulations are governed by independent legislators that govern the taxation system, the main legislator, the Kenya Revenue Authority (KRA) has different sections that deal with the above taxes while also having the authority to undertake reviews on various companies and corporations. The main goal of the system is to enhance tax compliance through simplified and efficient tax administration.

References

  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".
  11. ↑ "Not Found". www.ird.gov.lk. Retrieved 2019-11-04.
  12. ↑ "Pay As You Earn (PAYE)". www.ird.gov.lk. Retrieved 2019-11-04.
  13. ↑ "PAYE Tax : Inland Revenue shares details on how much exactly to pay". NewsWire. 2023-01-11. Retrieved 2023-03-01.
  14. ↑ "Sri Lanka 12.5% VAT 2020 - Avalara". www.avalara.com. Retrieved 2019-11-04.
  15. ↑ "value added tax (vat)". www.ird.gov.lk. Retrieved 2019-11-04.
  16. ↑ "Excise duty collection enhances to give big boost to revenue kitty". The Sunday Times Sri Lanka. Retrieved 2019-11-04.
  17. ↑ "Sri Lanka - Import Tariffs | export.gov". www.export.gov. Retrieved 2019-11-04.
  18. ↑ "Government removes taxes that deter intl.trade". Times Online - Daily Online Edition of The Sunday Times Sri Lanka. Retrieved 2019-11-04.
  19. ↑ "Unsung patriot". Sunday Observer (Sri Lanka). Retrieved 2019-10-04.
  20. ↑ "Tax System in Ancient Sri Lanka". Department of Inland Revenue, Sri Lanka. Retrieved 2019-10-04.
  21. ↑ "Inequality of the Sri Lankan tax system". Sunday Times. Retrieved 2019-10-04.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.