Govt. aims to increase tax revenue up to 15% of GDP: Ravi K

• Banking system expected do the job of IRA when foreign funds are flown in with no questions asked
• Ravi K disagrees with Mobius’s recommendations

By Shehana Dain

With just over two weeks to go for the National Government’s first Budget, Finance Minister Ravi Karunanayake yesterday said that the aim is to increase tax to GDP ratio to a minimum 14%-15%

Sri Lanka’s tax to GDP stood at 17.6% in 2004 but has dropped to 10.85% as of today. The country’s tax to GDP ratio is one of the lowest in the world.

“Normally a developing country has a tax to GDP ratio of 22% and India has 16%. We are far behind at 10.85%; we have to increase it to at least 15%-16%. We are going to do it this year without impacting the general public. We will ensure to collect tax revenues to a minimum of 14%-15% this time,” Karunanayake said.

He made these comments at a seminar themed ‘Legislations Arising from January 2015 Interim Budget and Budget 2015’ organised by the International Fiscal Association Sri Lanka branch (IFA).

However he noted that the increase of tax revenue would be a challenge when preparing a budget to satisfy the needs of the people.

“People’s expectations are very high. They want everything for nothing. They want their tax files closed. They want everything delivered at their doorstep and they don’t want to work for that. As a democratically-elected Government, we have to respond to their wishes and aspirations in line with practical limitations. That’s how we have to save our fiscal sector.We are doing various stimulations at the moment to see how to get the highest possible revenue without distorting fundamentals or impacting the people,” he added.

When asked if any laws would be brought in regarding the amnesty given for foreign currency and remittance holders which could increase financial crime, Karunanayake explained that the current banking system was stringent and had information about its clientele, in line with the ‘know your client’ concept.

“Amnesty is used in a bad quotation. What we are trying to say is that the banking system has advanced itself and the ‘know your client’ systemhas eradicated a lot of irregularities that are going on.When it comes from the banking system and the bank knows their clients, the bank will do the work what we should do. What we have to do today is ensure that we have globalised earnings in foreign currency that comes in.

“When we opened it we thought about financial crimes that could take place. However 99% of foreign currency holders are not financial criminals as opposed to the 1% corrupt people. If I’m going to stop going ahead with this move just because I don’t want to let those people come in, I will have to forgo the 99% who want to come in.”

The Treasury wants to keep the 2016 fiscal deficit to 5.5 to 6% of GDP, eliminating tax exemptions and tax holidays to make the tax system simple, fair and efficient.

“The new Budget will create a very comfortable environment for foreign investors. Singapore and Hong Kong will look at us and be shocked. It’s the wow factor we want to create.”

In response to a question raised by a participation at the Forum, the Minister disagreed with Dr. Mark Mobius’s thoughts in the Daily FT on Tuesday regarding the current financial structure, where Mobius called for a favourable taxation policy and focus on infrastructure to boost local and foreign investments. He also said retrospective taxation such as Super Gain Tax would impact new investments and the private sector.

“What do we care? He’s a guy who comes at 12.8%; if he wants to go let him go,” Finance Minister said in reference to Mobius’ $ 2 billion investments in Lankan Government Bonds and the price at which the Government had borrowed in the past. 

“We want honest players who bring in the money. We will develop policies which are good to our country, not for any other country,” retorted Karunanayake.