A Barrier to Growth and a Burden on the People”
Sri Lanka’s economic challenges are multifaceted, but one glaring obstacle continues to stifle growth and exacerbate inequality: its opaque and inconsistent tax system. Despite promises of reform from the current administration, meaningful changes remain elusive. The consequences of this neglect ripple through the economy, affecting businesses, discouraging investments, and pushing ordinary citizens further into financial despair.
The Anatomy of a Broken Tax System Sri Lanka’s tax framework is often criticized for its complexity, unpredictability, and lack of fairness. It is characterized by:
- Frequent Policy Changes: Businesses and individuals struggle to plan their finances due to sudden and arbitrary changes in tax policies.
- Lack of Progressivity: The system disproportionately burdens low- and middle-income earners while failing to adequately tax high-income individuals and corporations.
- Tax Evasion and Informality: Loopholes and weak enforcement encourage tax evasion, while a significant portion of the economy operates informally, outside the tax net.
Economic Growth at Stake A robust and transparent tax system is a cornerstone of economic development. In Sri Lanka, however, the current system impedes growth in several ways:
- Discouraging Investment: Unpredictable taxes create an unfavorable business climate, deterring both local entrepreneurs and foreign investors.
- Burdening SMEs: Small and medium enterprises, the backbone of the economy, are disproportionately affected by regressive taxes and bureaucratic hurdles.
- Undermining Public Services: Inadequate tax revenue, compounded by inefficiencies in collection, leaves critical sectors like education, healthcare, and infrastructure underfunded.
Impact on the Masses For ordinary Sri Lankans, the effects of the tax system are stark and immediate:
- Rising Cost of Living: Indirect taxes like VAT increase the cost of essential goods, hitting the poorest hardest.
- Erosion of Disposable Income: High taxation on salaries and savings reduces disposable income, shrinking consumer spending.
- Reduced Social Mobility: With limited investment in public services, opportunities for upward mobility remain scarce, perpetuating cycles of poverty.
Unfulfilled Promises of Reform The current administration’s commitment to tax reform has yet to materialize into actionable policies. While public statements emphasize fairness and modernization, concrete measures remain absent. Key areas requiring urgent attention include:
- Simplifying the Tax Code: Streamlining tax laws to reduce ambiguity and administrative burden.
- Expanding the Tax Base: Formalizing the informal economy and closing loopholes to ensure equitable contributions.
- Enhancing Transparency and Accountability: Implementing digital systems and regular audits to improve compliance and trust.
Sri Lanka’s vague tax system is not just an administrative inconvenience; it is a structural impediment to economic growth and a source of widespread social discontent. Reforming the system is not merely a policy choice but an economic necessity. The administration must move beyond rhetoric and deliver tangible changes to create a fairer, more efficient tax system that supports growth and improves lives.
…The path to progress requires a collective effort. Policymakers must engage with stakeholders, leverage expert insights, and prioritize the needs of the people over political expediency. Only then can Sri Lanka break free from the chains of its tax labyrinth and unlock its true economic potential…
