Sri Lanka’s newly revised Inland Revenue Act, which was passed by parliament on September 7, will augment the country’s very low level of government revenues by replacing the existing law with a more efficient, modern and broad-based tax framework.
This was opined by William Foster, Vice President, Sovereign Risk Group, Moody’s Investors Service. Through past additions of multiple tax exemptions, Sri Lanka’s income tax efficiency and tax collection are weak relative to other sovereigns. The general government revenue-to-GDP ratio was only 14.3% in 2016, one of the lowest among B-rated sovereigns. The reforms of the Inland Revenue Act offer prospects of higher revenues.
The implementation of revenue reforms that foster long-term fiscal consolidation will be critical to shoring up Sri Lanka’s credit profile, which is weighed down by the country’s large debt burden and relatively weak debt affordability.
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