The equitability of Sri Lanka’s tax regime is a complex issue with arguments on both sides:
Arguments for inequity:
Low tax-to-GDP ratio: Sri Lanka has a historically low tax revenue compared to GDP, around 8% in 2020 [IMF Staff Country Reports]. This suggests the overall tax burden may be light, but it could also mean some aren’t paying their fair share.
Tax cuts 2019: The government reduced income tax rates in 2019, potentially benefiting higher earners more [IMF Staff Country Reports].
High VAT: The Value Added Tax (VAT) applies to most goods and services, impacting everyone proportionally. This can burden lower-income earners who spend a larger portion of their income on essentials.
Arguments for equity:
Progressive income tax: Sri Lanka’s income tax has multiple brackets with higher rates for higher earners, aiming for a fairer distribution.
Exemptions and allowances: The tax code offers tax-free thresholds and exemptions that can ease the burden for low-income individuals.
Overall, the picture is mixed. While Sri Lanka has a progressive income tax structure, the low overall tax collection and high VAT raise questions about fairness.
The equitability of Sri Lanka’s tax regime is a complex issue with arguments on both sides:
Arguments for inequity:
Low tax-to-GDP ratio: Sri Lanka has a historically low tax revenue compared to GDP, around 8% in 2020 [IMF Staff Country Reports]. This suggests the overall tax burden may be light, but it could also mean some aren’t paying their fair share.
Tax cuts 2019: The government reduced income tax rates in 2019, potentially benefiting higher earners more [IMF Staff Country Reports].
High VAT: The Value Added Tax (VAT) applies to most goods and services, impacting everyone proportionally. This can burden lower-income earners who spend a larger portion of their income on essentials.
Arguments for equity:
Progressive income tax: Sri Lanka’s income tax has multiple brackets with higher rates for higher earners, aiming for a fairer distribution.
Exemptions and allowances: The tax code offers tax-free thresholds and exemptions that can ease the burden for low-income individuals.
Overall, the picture is mixed. While Sri Lanka has a progressive income tax structure, the low overall tax collection and high VAT raise questions about fairness.