Finance Minister Mangala Samaraweera yesterday said that the Government was focused on promoting fair, convenient and non-distortive taxes targeted at strategic industries that would encourage economic growth.
Speaking at the ceremony to open the VAT refund counter at the Bandaranaike International Airport (BIA), Samaraweera noted that even though the Government was focused on strategic industries, the benefits would be given in a rules-based manner.
“We speak a lot about the importance of improving tax collection in Sri Lanka. This has been one of the biggest challenges faced by our government and I am pleased to note that we have made important improvements in tax collection and compliance. This will help our objectives of servicing outstanding debt repayments, but a lot more needs to be done,” he said.
“At the same time, we are acutely aware of the importance of ensuring that taxation is fair, convenient and as non-distortive as possible. To this end, the Government will always give priority to the development of strategic industries. However, this will be done in a rules-based manner, as opposed to the ad hoc incentives that have led to corruption and tax leakage in the past.”
The Finance Minister insisted that under the reformed Inland Revenue Act (IRA), concessions had been given to a range of sectors that were identified as being thrust industries by the Government.
“In the Inland Revenue Act itself we have provided significant concessions to sectors including tourism, exports, IT, education and agriculture, all of which are taxed at 14% Corporate Income Tax. This is in addition to the attractive capital allowances which provide a major tax break for new investments.”
Tax incentives have also been supported by efforts such as the Tourist VAT Refund Scheme (TVRS), which was included in Budget 2018 and is expected to provide a significant boost for the tourism sector and the retail sector. The TVRS will enable Sri Lankan goods to have greater exposure to the global market, bringing with it several positive economic spillovers.
“Neighbouring countries including Thailand and Singapore have become regional shopping centres and utilising VAT-free shopping has been an impetus for this. Year around, tourists will visit increasingly for the sole purpose of shopping and international retailers have as a result invested heavily in these countries. Sri Lanka has similar potential to exploit such opportunities, particularly considering its significant tourism assets above shopping and retail.”
The Minister said he expected the TVRS to provide a significant incentive for luxury retail operators in Sri Lanka and looked forward to seeing enhanced investments from this sector.
“Since this is a new initiative, we may experience some initial teething issues in implementation. But I expect that the officers of the IRD will take diligent measures to bring the system up to global standards within a very short period of time by adopting the best available technology and expertise.”