By Sri Lanka aims to increase its tax collection directly through income, wealth, and property taxes to 40% by 2025, up from the current 30%, according to State Finance Minister Ranjith Siyambalapitiya. This will be achieved by expanding tax nets and taking legal action against tax evaders.
Direct taxes are collected from individuals with higher incomes and those owning assets and properties. In response to the economic crisis and sovereign debt default, Sri Lanka has increased both direct and indirect taxes. President Ranil Wickremesinghe’s administration is also considering introducing new wealth, property, and inheritance taxes next year in line with commitments to the International Monetary Fund (IMF).
Siyambalapitiya noted that state revenue has risen to nearly 13% of GDP from 8.3% in 2022. Initially, 80% of taxes were indirect and 20% direct. This has now shifted to a 70:30 ratio, and the goal is to reach a 60:40 ratio by 2025, with a fairer distribution of tax burden.
The increased tax burden has made the Wickremesinghe government unpopular, as it has reduced people’s purchasing power and disposable income. However, Siyambalapitiya emphasized the need to sustain current tax policies to stabilize the economy, aiming for state revenue to reach 15% of GDP. The decline to 8.3% of GDP was a significant factor in the economic crisis.
Efforts are underway to register professionals in 14 special categories, including lawyers, doctors, and private surveyors, for income tax. Legal action is also being taken against tax evaders to boost direct tax collection from those who can afford it.
Siyambalapitiya stated that once state revenue reaches 15% of GDP with 40% from direct taxes, the government would likely reduce indirect taxes and raise the PAYE (Pay As You Earn) tax threshold from the current 100,000 rupees. However, this will only be possible once the economy reaches a more stable level.
He acknowledged the challenges in increasing tax revenue from 8.3% to 13% of GDP but expressed confidence that Sri Lanka could soon achieve the target of 15% of GDP
