Indirect Taxation in Sri Lanka: The Development Challenge

Abstract

Sri Lanka is seeking rapid economic growth targeting at doubling per capita income by 2016. Nonetheless, inequality is at its historical highest and thus the development challenge is to ensure that rapid economic growth is achieved while better ensuring equitable income distribution. Since fiscal deficit is significantly high in Sri Lanka, taxation is crucial in generating government revenue because of the harmful macroeconomic repercussions of other means. However, tax ratio is on the decline and the decline is closely related to the decline of the indirect tax revenue. Therefore, enhancement of indirect taxation is vital. Efficiency and productivity of VAT should be improved while taking measures to ensure equity. This will be an important development challenge to the country.