• Digitalisation is the key tax administration plank of an upcoming medium-term revenue strategy
• The ministry favours a phased rollout because digitalisation is costly
• IMF points to Chile’s free e-invoicing for small firms as a model

Sri Lanka is moving to integrate its separate tax systems and revenue collection agencies and to introduce electronic invoicing, as the Government prepares a medium-term revenue strategy that identifies digitalisation as the key to tax administration, according to Ministry of Finance Department of Fiscal Policy Director General Dr Kapila Senanayake.

Responding to a question raised by The Daily Morning Business at a capacity development talk on ‘Leveraging Technology to Strengthen Public Financial Management in South Asia’ on the sidelines of the International Monetary Fund (IMF)-World Bank Group Annual Meetings in Bangkok, Senanayake said Sri Lanka currently operates different tax systems and revenue collection agencies with no integration between them. He said the Government is now working to integrate these systems.

He said the move to e-invoicing follows the proposal in the last Budget to introduce point-of-sale (POS) machines, and that the Government is now engaged in implementing digitalisation across tax administration.

Senanayake said digitalisation comes at a cost, so the Government has to think holistically about how to improve these systems. He said it should be rolled out in phases.

“In the tax administration side, we have identified digitalisation as the key,” he said, referring to the medium-term revenue strategy now being prepared. He added that the upcoming Budget will also emphasise the importance of digitalisation.

“So I think it’s a long way to go,” Senanayake said.

IMF Fiscal Affairs Department Deputy Director Juan Toro, speaking at the same session, said digitalising tax compliance could also help bring small businesses into the formal economy, a problem he said many countries face.

Toro said the taxpayer compliance cycle closely mirrors the business cycle. Firms register, buy and sell using invoices, and manage payrolls. When tax authorities digitalise that cycle, he said, they also help digitalise the businesses themselves.

“This is a win-win situation for both,” he said.

He cited his own country, Chile, which introduced electronic invoicing several years ago and provided a free-of-charge solution for small companies. Toro said this allowed the tax authority to generate pre-populated value added tax (VAT) returns and a simplified accounting system for small firms, since their operations are simple and fully reflected in VAT.

He said larger companies could rely on private sector solutions, but free services for small firms could deliver a significant benefit to both taxpayers and the revenue administration.

Toro said digital public infrastructure (DPI) and affordable connectivity were also important, because poor connectivity makes it costly for taxpayers to use digitalised systems. He added that small taxpayers with fully digital records would also be better placed to access the banking system.