The Hon. Wijesiri Basnayake

¶ 01 Hon. Deputy Speaker, we debate amendments to the Inland Revenue Act, No. 24 of 2017. The Opposition is, as usual, trying to frighten the public, alleging we are bringing back criminal law. That is not so. When aligning with international standards on income taxation, we must bring our system to that level.

¶ 02 Governments need funds for annual functions; tax and non-tax revenues are key. Direct taxes, corporate income tax, taxes on goods and services, and taxes on international trade are essential components.

¶ 03 In 2022, Sri Lanka’s government revenue as a share of GDP fell to 7.3 percent—among the lowest in the world—due to weak tax design relative to accepted global standards, poor administration, inefficiencies, corruption and evasion, and preferential reliefs for favourites. The result is chronically low revenue. To develop, we must raise revenue to at least 15 percent of GDP and beyond.

¶ 04 We pledged in “A Prosperous Country – A Beautiful Life” to reform tax administration. These amendments simplify the complex system, remove ambiguities, make administration efficient, and take necessary steps. For example, we remove the SET report related to estimated payments; and the tax due for an assessment year for an individual will be determined relative to the prior year’s tax, easing compliance. Payments by the Sri Lanka Air Force to non-residents for specified services (e.g., aircraft and software licences) will be exempt. We are clarifying life insurance proceeds.

¶ 05 Donations to state universities established under the Universities Act will be treated on a net basis for tax. Capital gains tax for individuals/partnerships rises from 10 to 15 percent, while for other entities it remains at 30 percent. Through many such measures, we simplify, broaden the base and improve compliance—not to reintroduce criminal law arbitrarily, but to create a graduated enforcement pathway.

¶ 06 On the rupee’s depreciation, many external factors—conflict in the Middle East increasing freight, insurance and surcharges; higher oil prices; higher dollar import bills—have weighed on us. We must have a long discussion on interest rates and reserve levels. Exports, remittances, and tourism have all been hit, contributing to pressure on the rupee versus the dollar. This is not mere “inefficiency” but a confluence of shocks. Our amendments aim to create a simpler tax system, greater compliance and a broader base to raise state revenue and deliver services effectively.

¶ 07 Thank you.