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Tax revenue to plummet if pandemic persists

29 May 2021

By The Sunday Morning Desk [caption id="attachment_139186" align="alignright" width="200"] IRD Commissioner General H.M.W.C. Bandara[/caption] Despite close to half of the tax revenue target being met by the Inland Revenue Department (IRD) earlier this month, even before the end of the first half of this year, IRD Commissioner General H.M.W.C. Bandara said that if the prevailing Covid-19 conditions persist for more than a month, reaching the remaining half would be severely hampered. Speaking to The Sunday Morning Business, Bandara stated it is not possible to forecast the possibility of meeting the targeted annual tax revenue of Rs. 575.5 billion amidst the volatile local environment. “We do not know until when this condition will go on. It will depend on the Covid-19 situation. Sometimes it could be difficult to achieve the set target if the condition of the prevailing situation further extends by another two to three months or so,” he explained. However, being optimistic, Bandara said the target could be achieved if the economy bounces back, as 98% of the biannual revenue target has already been achieved by the IRD. The Committee on Public Finance (COPF), chaired by Anura Pryarshana Yapa, earlier this month appreciated IRD’s achievement in the face of the present global crisis. However, the Committee stressed that the IRD should increase the number of taxpayers in Sri Lanka. In 2020, the revenue target given by the Government to IRD was Rs. 613 billion, which was close to 2016’s total revenue collection. This reduction in the target was done due to the various tax relief measures provided by the Government in their initial months to stimulate consumer spending and economic growth in the country. 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. Accordingly, 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 November 2019. 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 enterprises (SMEs) in all sectors of the economy.

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