Sri Lanka has one of the lowest tax to GDP ratios that dropped about 7.3% in 2022 and this should be corrected soon, said World Bank Economist Richard Walker in Colombo yesterday.
He attributed this to a poorly designed tax policy and challenges in tax administration. “Also the tax net has to be widened and non tax paying sectors should be targeted to pay taxes rather than taxing the same segment again and again.”
He also said that even the IMF has identified the weakness of Sri Lanka’s tax revenue collection. Walker also said that once a concrete plan is spelt out and implemented by the government to strengthen the tax system it should not be changed by another government.
“Another recommendation is around the strengthening of capital taxation. Sri Lanka has carried out critical reforms since the start of the economic crisis. Current efforts to mobilize tax revenue should be coupled with continued reforms towards transparency of expenditures to build public confidence and to deliver better public services.”
He also said that the government expenditure too should be curtailed and they should be spent more efficiently. “the focus should be on the bleeding SOEs revival and there are several places where governance can be enhanced and improved and I think there has been some commitment from the government to get this done.”
The World Bank also spoke to the government on strengthening the SME sector. “The government needs to stay committed to the IMF reform agenda which will also help to create good governance and even curb corruption.” I see a commitment by the government to stay on track to deliver on this reform programme. We suggest a V shape recovery for Sri Lanka. We also see a rebound in tourism and remittances. Tourism has been particularly strong, much stronger in the first half of this year than expected.”
He said that despite the removal of import restrictions, they expect the current account deficit will narrow further this year due to continued liquidity restraints and constraints but they expect it will remain benign thereafter with the recovery in tourism. He said that debt restructuring should not be prolonged as it could exert financial pressure on the country.
“We are concerned about a slower, sharp global slowdown.” Another concern for Sri Lanka is the ‘brain drain’ and this aspect has to be addressed soon.
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