IPS National Policy Dialogue explores taxation link in Sri Lanka’s development

Sri Lanka’s declining tax revenue performance amidst rising development needs came under the spotlight at an event held at the Institute of Policy Studies (IPS) last week. The National Policy Dialogue, supported by the Partnership for Economic Policy, was attended by top officials from the Department of Inland Revenue and the Central Bank of Sri Lanka, university academics, as well as representatives from civil society organisations like Transparency International and Plan Sri Lanka.  

The focus of the open and productive discussion was on what needs to be done to move forward on the taxation and development agenda in the country and to begin answering the question of how to fund Sri Lanka’s development drive in the wake of dwindling international donor funds.

The presentation by IPS researcher Priyanka Jayawardena of the findings of an innovative study that looked at the impact of the 2011 tax reforms undertaken by the IPS with funding from PEP, triggered a useful discussion among the participants on the need for evidence-based tax policymaking to make sure that reforms not only improve the system but also preserve much needed revenue.

The study found that while the inclusion of public servants, who were previously exempt, to the tax base has resulted in correcting the horizontal inequity that existed between public and private sector employees, the structural changes brought to the new tax scheme has resulted in a decline in overall tax revenues when compared with 2007.  

Jayawardena suggested the implementation of a revision to the current system by either maintaining the 2011 reformed tax base (i.e. with the revised threshold level) but increasing the tax burden, or increasing both the tax base (lower tax free threshold) as well as the tax burden, would both improve revenue and equity.

To further add value to the discussion, Sriyanie Wijesundare of the Centre for Policy Alternatives (CPA) made a presentation on the importance of participatory budgeting to link taxation and governance at the Pradeshiya Sabha level, and Anushka Wijesinha, Research Economist at the IPS, made a presentation on the role of taxation in strengthening the state’s capacity for development.

This event comes a year since the IPS partnered with International Centre for Tax and Development (ICTD), UK to hold the first ‘International Conference on Taxation and Development’. Last year, the event was organided on a larger scale with over 150 participants from across the board, representing tax professionals and other stakeholders. This year, the event was designed to allow deeper dialogue between the tax officials, economists, civil society and other experts in the field of taxation.