In the next two years, the cash-strapped government will implement a slew of new direct taxes, including a wealth tax, property tax, wealth transfer tax, and road tax.
The ongoing progressive tax reforms will be maintained, with new adjustments made as needed to strengthen personal income tax (PIT), corporate income tax (CIT), and VAT, according to Finance Ministry sources.
The Inland Revenue Department (IRD) was able to collect Rs. 316.62 billion in tax revenue during the first quarter of 2023 as a result of recent tax reforms, compared to Rs.146.56 billion during the same period last year.
According to the sources, the decrease in share market transactions resulted in a reduction in the Share Transaction Levy, while the elimination of the Economic Service Charge (ESC), Nation Building Tax (NBT), and Debt Repayment Levy resulted in a decrease in other tax revenue.
Revamping the VAT system will come into effect during Q3-Q4 period in 2023 by removing almost all product specific VAT exemptions.
The adverse distributional impacts of the VAT rate hikes were mitigated by maintaining VAT exemptions on basic food items.
To bring the tax to GDP ratio to at least 14 per cent by 2025, the authorities commit to revamping the VAT system before 2024, by removing almost all product specific VAT exemptions, IRD sources said.
The government has reached a consensus with the IMF to enforce property tax and wealth transfer tax in 2025 as it takes some time because of preparation and consideration of public representations, a senior Finance Ministry official said.
The ministry is striving to introduce more direct taxes on par with international practices with the aim of increasing tax revenue at least by 15 per cent to 35 per cent from the present rate of 20 per cent in the short term, Minister of State for Finance Ranjith Siyambalapitiya told the Business Times.
The Finance Ministry’s Budget Department is exploring the possibility of introducing Wealth tax which was in the pipeline for several years, new super gain tax, new capital gain tax modified surcharge tax and several other novel direct taxes.
Meanwhile the Transport Ministry has proposed to levy Rs.10 fuel tax from motorists as and when they secure fuel at filling stations.