COLOMBO: Sri Lanka’s government is determined to change its tax structure since a plethora of taxes is deterring export growth, Central Bank Governor Arjuna Mahendran said.
“The way we tax ourselves has got to change – the message has come through clearly in the recent VAT (value added tax) debate,” he told a forum organised by the Shippers’ Academy Colombo.
Sri Lanka’s finance ministry last month announced VAT would be increased to 15 percent from 11 percent with effect from 02 May 2016 while the Nation Building Tax (NBT) would remain unchanged at 2-percent.
Mahendran said that he was worried that in the last 10 years, instead of making the VAT system more efficient, the government started taxing by other means like the NBT, special commodities levies and excise taxes, which came instead of any increase in VAT coverage.
“Other taxes were smuggled in so people were deluded into thinking they are paying less tax when VAT went down but paid other taxes like the NBT,” Mahendran said.
“That growth of taxes on trade has been the single biggest deterrent to the growth of exports.”
Exports which were 30% of gross domestic product in the early 2000s had fallen to 14% of GDP today.
“Sri Lanka is probably the only nation in Asia whose exports have contracted as a percentage of overall GDP,” Mahendran told the forum held to brief the shippers’ community on the outlook for the economy.
“The reason is we’ve grown our trade taxes. We are taxing people for imports and exports. It does not make sense for anyone to start an export business anymore. It is very worrying.”
Mahendran said it was worrying since the nation must export because it import most things, from food to oil, to continue growing the economy.
