Ali Sabry says tax revenue as a percentage of GDP dropped to single digits in 2021
Adds a country should ideally have a rate between 14-15%
By Imesh RanasingheMinister of Finance Ali Sabry PC, addressing Parliament yesterday (4), stated that the several tax concessions announced by President Gotabaya Rajapaksa several days after being elected President were a mistake. Sabry said that the taxes should not have been reduced in 2019, and that the rupee should have been allowed to depreciate stage by stage much earlier, while debt restructuring should also have been done earlier.Further, he said that Sri Lanka’s tax revenue as a percentage of GDP has gradually decreased over successive governments, as it has reduced from about 25% of GDP during the 1981-1983 period to 8.6% by 2021.“Any country should at least have its tax revenue at 14-15% of GDP to be sustainable,” he added.Taking about the income and expenditure the State saw in 2021, Sabry said that the total revenue of the Government (grants and tax revenues) in 2021 was Rs. 1.48 trillion, while the expenditure was Rs. 3.52 trillion and recurring expenses were at Rs. 2.74 trillion.In 2021, the Government had paid Rs. 1 trillion as interest payments, and of the recurring expenses, Rs. 845 billion had been spent on state sector salaries.The Finance Minister said that Sri Lanka has repaid $ 8 billion as capital and interest for debt repayment in 2020 and 2021, while in 2020, Sri Lanka had paid more than it had taken in loans, as the country was unable to secure any loans due to its unsustainable debt.According to statistics from Verite Research, there has been a decline in Sri Lanka's tax base between 2019 and 2020, with a 33.5% decline in the number of registered taxpayers (corporate and individual) in the country. This decline is most probably associated with the major changes in tax policy introduced in December 2019, particularly the increase in thresholds for Value Added Tax (VAT) and the abolition of Pay As You Earn (PAYE) tax.On 1 January 2020, the mandatory PAYE Tax on any employment receipts to any resident or non-resident person was removed, and on 1 April 2020 was replaced by the Advance Personal Income Tax (APIT), which is an optional scheme. The tax-free threshold for personal income tax was also increased from Rs. 500,000 per annum to Rs. 3,000,000 per annum, reducing a large number of taxpayers from Sri Lanka's tax base.
