by Lorys Charalambous, Tax-News.com, Cyprus
The International Monetary Fund (IMF) has welcomed Sri Lanka’s new Inland Revenue Act, due to be introduced early next year, saying that it should boost tax revenues and improve tax administration.
The IMF said the current Act hinders investors’ ability to understand the income tax system and local tax official’s ability to administrate, and is a contributing factor to Sri Lanka’s low tax-to-gross domestic product ratio.
The IMF said in its annual report for Sri Lanka that the legislation should enable the country to collect tax from a wider range of sources and could increase its tax revenues by 1.4 percent of GDP.
The IMF said the new Act should: broaden the tax base by removing excess tax incentives; modernize rules related to cross-border transactions to address base erosion and combat tax avoidance; reduce complexity through an improved principles-based drafting style; and strengthen and clarify existing powers of the Inland Revenue Department to improve enforcement.
The IMF noted that VAT reforms that were delayed in parliament are set to be adopted this year. This will include the adoption of a risk-based VAT compliance strategy.
Sri Lanka’s tax revenue for 2016 is likely to exceed the full-year target of LKR1,428 billion (USD9.59bn), which is equal to 11.8 percent of GDP, the report said.