Could the government motivate taxpayers?

Sri Lanka has been struggling with a number of economic complications pertaining to the country’s tax system.

- By INDRAJITH KARUNARATHNA

However, this characteristic of taxation has been challenging as it does not deliver the potential tax revenue while maintaining a satisfactory level of tax compliance. In recent years, this issue in taxation has been focused on with much debate among politicians, academic researchers, policymakers and practitioners. Yet, every government has been compelled to experience this challenge that is detrimental to the fiscal operation of the government, fairness of income distribution, efficiency, smooth economic stability and transparency.

It’s said that still there are only a few taxpayers registered in Sri Lanka, which is a minimum percentage of the entire population. This is actually a disaster. It indicates the government is now dealing only with a few individual taxpayers whilst imposing and increasing the tax rates to that very limited section. Someone could argue that the problem does not relate to the tax rates whereas it relates to tax administration. Of course, the government is supposed to rescrutinize the composition of the Inland Revenue Department (IRD) and whether they are capable of administering the tax files or whether they have enough resources to accommodate the requirements.

Normally people are reluctant to pay taxes. It’s an inherent limitation in any tax system. Especially with these adverse economic conditions in Sri Lanka, the power of purchasing has dramatically deteriorated. It also doesn’t provide a good sign or indication even for the active taxpayers.

How should the government raise the tax base? The answer for this will not be a popular decision for any government. However as per the provisions of the Inland Revenue Act No. 24 of 2017, every person who has a taxable income shall file a ‘return of income’. Nevertheless, a resident individual who only has income from employment that is subject to PAYE will not be required to file a return for that year of assessment (section 94(1)(a)(ii).