The Inland Revenue Department (IRD) and the Consumer Affairs Authority (CAA) will conduct raids with immediate effect to nab traders not complying with the tax revisions introduced last month, IRD Commissioner General Nadun Guruge told the media last week.
According to him, a large number of traders do not yet fall in line with the new tax revisions and steps have been taken with the CAA to take to task those who fail to pass on the benefit of tax reductions to consumers.
The Cabinet made a slew of tax amendments last month comprising the reduction in the Value Added Tax from 15 to eight percent, increase in the tax-free threshold for VAT from Rs. 1 million to Rs. 25 million turnover per month and the VAT on banking, financial services and insurance to be maintained at 15 percent and the income from agriculture, fishing and livestock to be made income tax free.
The income tax for individuals has been reduced to 18 percent from 24 percent. The progressive rate applicable on personal income was revised to six percent, 12 percent and 18 percent and the tax free limit and the tax slab was revised to Rs. 3 million per annum from January 1. Corporate income tax rate will be revised from April 1, this year and accordingly the tax rate for exports, tourism, education, medicare, construction and agro processing will be 14 percent, manufacturing 18 percent, liquor, tobacco, betting and gaming 28 percent and trading, banking, finance and insurance 24 percent.
The tax revision scheme will be implemented in three stages from December 1, 2019.
When asked whether the recent tax concessions would not affect achieving last year’s tax revenue target Guruge said over 95 percent of the tax revenue target of 2019 has already been achieved and added that the tax relief measures will not hinder the IRD recording its target as the full impact of the fiscal stimulus package will be realised only from January next year,” Guruge said.
The tax administrator of the State, targetted Rs. 800 billion in revenue last year. The revenue collector added Rs. 652 billion as tax revenue to the State coffers last year.
However, IRD officials said in the short term there could be a revenue loss to the State coffers due to the tax concessions which will be felt in a couple of months time.
The IRD expects a drop in tax revenue this year and the revenue target for the year to come down.
“We will see the impact of the tax reductions and removals in the next couple of months and that would impact the revenue targets,” Guruge said.
The Central Bank Governor last week said there is scope and justification for some infusion of aggregate demand but the fiscal stimulus package should be structured in a way that it does not lead to overheating of the economy.
The stimulus measures were introduced to boost the disposable income that would increase consumer spending which had been curtailed due to the number of taxes.
However, economists and tax experts said over-stimulating of the economy could lead inflationary pressure and destabilisation of the economy.
A World Bank economist last week cautioned the country on striking a fine balance to prevent the loosening fiscal policy leading to overheating of the economy.
Finance Minister Mahinda Rajapaksa speculated that the fiscal deficit in 2019 could be around seven percent of the GDP.
He said the government will recalibrate operations to strengthen fiscal and reduce the deficit to four percent in the medium term.
The government has said that it would engage in discussions with the IMF to continue the US$ 1.5 billion External Fund Facility which is due to be completed mid this year.