The government has lost a staggering tax revenue of approximately Rs.80 billion in 2023, due to the widespread Personal Income Tax (PIT) evasion among the eligible taxpayers, according to a recent study by the Institute of Policy Studies (IPS). 

The study, which assessed the tax contributions and benefits across various income groups in Sri Lanka, highlighted the concerning trend, as the practice directly impacts the government revenue, particularly in the category of direct tax payments.

“In the public sector, around 20 percent of workers are subject to PAYE (Pay As You Earn). About 300,000 individuals in the employer and self-employed population are liable for Personal Income Tax,” IPS Research Economist Pranayak Jayawardana stated.

“However, our analysis indicates a huge tax evasion, as the estimated PIT revenue for 2023 is around Rs.130 billion, but the actual collected revenue was only about Rs.50 billion,”she added.

Despite the measures to broaden the tax threshold, the burden of direct tax liability to the government is concentrated among the wealthier households of the country.

In contrast, the indirect taxes, especially the Value-Added Tax (VAT), place a heavier burden on the lower income groups, according to the study.

The poorest households face an estimated VAT burden of around 9 percent of their total income, while the wealthier households shoulder a burden of approximately 6 percent. 

The recent VAT revisions, which increased the rate from 15 percent to 18 percent, disproportionately affect the bottom 40 percent of the population, with their tax burden rising by 60 percent, compared to the 50 percent increase for the wealthier groups.

Accordingly, the findings highlight that the current tax structure in Sri Lanka is inequitable, requiring urgent reforms to improve administration and compliance to ensure that the system is fair and sustainable. (NR)