Written by Tharushan Fernando
30 Oct, 2015 | 6:12 pm
Central Bank Governor Arjuna Mahendran slammed Sri Lanka’s tax system as ‘pathetic’ and ‘regressive’ and said government revenue is still only 10% of GDP despite taxing citizens as a ‘sub-Saharan country’
“Despite our high levels of literacy and high per capital income which is close to 4000 US dollars per annum still taxes its people as a sub-Saharan country,” Central Bank Governor Arjuna Mahendran addressing the 27th Anniversary Convention of the Association of Professional Bankers said.
“We only manage to get government revenue of about 10 percent of GDP (gross domestic product). It is quite pathetic. For some odd reason the government can’t bring itself to raise enough taxes to pay its debts, let alone the rest of expenditure such as paying public servants.”
“This country will make it or break it simply on the issue whether it can tax its people sufficiently in an equitable manner so that everybody bears the burden of development on a fair basis, that’s going to be the challenge,” he said.
The Central Bank chief said the previous government’s mega infrastructure development programme was driven by expensive foreign borrowings which has trapped the country in huge amounts of debt.
“Lot of concrete has been poured over the last five seven years principally funded by expensive borrowings from foreign countries and foreign markets. It’s very well provided that those infrastructure then becomes productive and gives us the sort of returns to pay that back, but it’s not the case,” Mahendran said.
Economists say despite low state revenues, the government worsened the tax burden by increasing public sector salaries by 40 percent in the revised budget for 2015. The government was also monetizing debt to keep interest rates down and fund salaries of a bloated public sector.
The Central Bank chief said they are also looking at simplifying and rationalizing Sri Lanka’s tax system with the aim of boosting state revenue. The Central Bank is looking at linking tax payers with the Inland Revenue Department through an internet payment solution that will make it easier for tax payers to pay up.
“There are over 30 types of taxes that people have to pay. People don’t like to pay something they don’t understand. That’s part of the problem. We also have to rationalize tax exemptions,” Mahendran said.
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