- Taxes on vehicle imports to drive down sales
- Rationale for taxes is to control pent-up demand
Achieving the tax revenue target of around Rs. 5 trillion this year, according to tax experts seems bleak given the drop in consumption due to the yet high commodity prices and the non-attainable vehicle tax target of this year.
The tax revenue expected from vehicle imports this year is around Rs. 300 billion. However, reaching that target seems very unlikely according to a tax expert due to high taxes on vehicle imports, making it unaffordable to many.
Taxes on imported vehicles include Customs duty, luxury tax, value added tax and excise duty.
“The tax burden on vehicle importers is high and not fair,” said Gajma and Co. founder and senior partner N. R. Gajendran.
A rationale for the high vehicle taxes according to a senior official of the Finance Ministry is to control the pent-up demand for vehicles that was restricted due to the foreign exchange crisis that triggered with the global pandemic.
Meanwhile, President Anura Kumara Dissanayake met officials of the Inland Revenue Department last week to discuss plans to realise the tax revenue targets set for this year and beyond.
The discussion centred primarily around strategies to achieve the revenue targets for the year.
The President outlined the need for an interventional approach than the current mechanisms in place to recover uncollected revenue also called upon IRD officials to take steps to ensure that the full tax revenue owed to the Department is collected.
However, the International Monetary Fund in a virtual press briefing last week said that it would be closely monitoring Sri Lanka’s fiscal and structural reforms ahead of the fourth review, following the completion of the third review under the Extended Fund Facility program.
The multilateral lender approved last week the third review, enabling Sri Lanka to draw US$ 334 million, bringing the total disbursements under the bailout program to US$1.34 billion.
The Fund underscored the need to strengthen tax compliance and eliminate exemptions to maintaining fiscal discipline. It also cautioned policymakers that further reforms were critical to sustain economic recovery.
Economists said additional gross revenue gains of 1.6 percent of the GDP have to be generated to meet the 2025 tax revenue target of 13.9 percent of GDP. The IMF highlighted that these gains were vital to counter tax concessions such as the removal of the imputed rental income tax and the lower VAT compliance.
Shockingly around 70% of the country’s tax revenue is derived from fewer than 600 tax files, representing less than 1% of the total files maintained by the national tax collector.
However, excessive tax burdens could drive capital flight, disincentivise investments and savings and prompt skilled professionals to leave the country. Tax evasion and avoidance increase will further strain public confidence and economic efficiency.
