brand logo

IRD target lowered to 2016 levels

10 Jan 2021

After failing to achieve even the lowered tax revenue target for the year 2020, the Inland Revenue Department (IRD) has been given a tax revenue target which is closer to the tax collected by the IRD about five years ago, The Sunday Morning Business learns.  The tax revenue target given to the IRD is Rs. 685.5 billion, inclusive of a Rs. 110 million target given to Sri Lanka Customs to collect import value-added tax (VAT) on behalf of the IRD, which means the tax revenue that should be achieved by the IRD is about Rs. 575.5 billion for the year 2021, according to IRD Commissioner General H.M.W.C. Bandara.  Meanwhile, the revenue collected by the IRD in 2016 amounted to Rs. 641 billion inclusive of import VAT raised by Sri Lanka Customs. Even though this year’s target is higher than the previous year, this is the second consecutive year the Government bucked the annual trend of gradually increasing the tax revenue targets given to the IRD.  Last year, the Government set a target of Rs. 613 billion for the IRD, close to that of 2016’s total revenue collection. This reduction in the target was due to the various tax relief measures provided by the Government in their initial months to stimulate consumer spending and economic growth. However, Bandara told The Sunday Morning Business that out of this figure, only Rs. 495 billion was supposed to be raised by the IRD in 2020 and even out of that, only 86% of the target was met by the end of the year.  The IRD recorded revenue of Rs. 836 billion in 2017, while in 2018, it managed to collect over Rs. 900 billion. According to several reports, the targets given for the years 2017 and 2018 were Rs. 651 billion and Rs. 792 billion, respectively. In 2019, the revenue target given to the IRD was Rs. 799 billion. The IRD had managed to get much closer to the target by achieving Rs. 785 billion last year. But it fell short of Rs. 14 billion. In November last year, then IRD Commissioner General Nadun Guruge told The Sunday Morning Business that while the target set for the year was Rs. 613 billion, by 30 September, only about Rs. 327 billion was raised compared to Rs. 597 billion raised in the first three quarters of 2019.  The reduction of the 2020 target was due to the various tax relief measures provided by the new Government soon after they were elected to power in the November 2019 Presidential Election. The most notable one amongst these was the reduction of the value-added tax (VAT) from 15% to 8% with effect from 1 December 2019. In addition to this, the nation building tax (NBT) of 2.2% was also removed with effect from 1 December 2019, including for financial service businesses. The threshold for registration of VAT purposes was increased from Rs. 12 million per annum to Rs. 300 million per annum with effect from 1 January 2020 in order to provide immediate relief, particularly for small and medium-sized businesses in all sectors of the economy. Following the announcement of these tax concessions in November 2019, Moody’s Investors Service stated that these tax concessions are “credit negative”, implying that it would lead to a downgrading of the country’s present rating of B1/Stable, unless it is managed properly. In October this year, Moody’s downgraded Sri Lanka’s ratings to “Caa”. Fitch Ratings also warned that the stimulus package would derail the budget disciplining exercise started by the previous Government and revised Sri Lanka’s outlook to “Negative”. Releasing a statement to the media on 19 December 2019 following the Fitch rating, the Ministry of Finance noted that Fitch’s analysis is lacking the impact of offsetting measures that the Government is undertaking to meet any revenue loss, and lacking due recognition of the favourable macroeconomic impact that tax concessions would deliver over the medium term.  


More News..