20 November 2023 02:07 am Views - 318
Among the various proposals suggested by experts to broaden the tax base, one recommendation that stood out was the potential introduction of a cap on cash transactions, mandating electronic fund transfers or checks for financial transactions.
The Chief Executive of Standard Chartered Bank Sri Lanka, Bingumal Thewarathanthri proposed to bring in legislation to cap the transactions made via hard cash as still a large majority of transactions are being carried out using cash which makes it difficult to identify if a person is liable for tax.
“I think it is also important that we cap the cash,” Thewarathanthri told a post-budget forum organised by the Centre for Banking Studies of the Central Bank, responding to a question as to how the banking sector could help the country to widen the tax net.
“Lot of countries have a cap for cash transactions. For Sri Lanka, it should not be anything more than Rs.200,000 and rest should either be made via a bank transfer or a cheque,” he said. Sri Lanka lacks a culture of individuals contributing their fair share of taxes to the government, influenced by various factors. As a result, whenever taxes are raised, the burden falls disproportionately on existing taxpayers, particularly impacting the poor and the middle-income class. This is specially true when the government aims to raise indirect taxes or taxes on goods and services.
During the last 18 months the value added tax rate was raised thrice from 8 percent to 12 percent first, and then to 15 percent before raising to 18 percent a fortnight ago, which would come into effect from the beginning of next year, as the government struggles to meet the revenue targets set by the International Monetary Fund (IMF).
While raising VAT is the easiest way for any government to fill up its coffers, its burden is disproportionately felt most by the poor and the middle class as they pay a higher share from their incomes as taxes, compared to the affluent.
Joining in the discussion, Sujeewa Mudalige, the former Managing Partner at PwC Sri Lanka, suggested that banks should request individuals’ tax file when issuing credit cards or providing foreign currency for travel abroad.
Additionally, he advocated for taxing individuals at the source, considering it as the most straightforward method to identify those liable for taxes, specially given that Sri Lankans are still developing the mindset of contributing their fair share to the state. He went on to suggest obtaining one’s tax file when enrolling his or her child to a private school and when purchasing air tickets.
While acknowledging that these measures are direct ways to expand the tax base, Mudalige highlighted their inherent challenges, both politically and in terms of public opinion. Despite their difficulty, he emphasised their critical role in boosting state revenues and aiding the country in overcoming the current economic crisis.
He underscored that the economic challenges were exacerbated by the tax cuts in 2019, a period often overshadowed by the two-year-long disruption caused by the pandemic, which significantly impacted normal economic activities.