Those opposing the newly implemented tax reforms, or tax hikes, claim that it could be the beginning of a new form of “aragalaya” (a reference to last year’s anti-Government protests and people’s struggle) and that the only difference would be that this time, there are prominent figures such as professionals including doctors, lawyers and high-ranking officials who would challenge the Government. A more organised group of such parties, including those who have direct involvement in providing essential services, have already taken to the streets, threatening to cripple the provision of various services if the Government fails to reverse these tax reforms.

However, despite these demands and threats of prolonged protests, the Government appears to be ready to stand by its decision. At a recent forum, President and Minister of Finance, Economic Stabilisation, and National Policies Ranil Wickremesinghe defended this decision, claiming that the existing tax policy is not an ordinary tax policy but a rescue operation, and cautioned that any disruption to this process will result in Sri Lanka being unable to secure International Monetary Fund (IMF) funding and losing the opportunity to engage in business activities with foreign countries.

There is no denying that boosting tax revenue plays a major role at a time when the country is struggling to use every possible avenue to rectify decades of economy-related mistakes and irregularities. Above all, it is one of the main ways of reducing the astronomical fiscal deficit that the country has been refusing to properly address for a long time. However, how practical and beneficial these tax reforms are, especially in the long run, is a question, because increased tax rates go way beyond merely filling the Government’s coffers. 

In fact, the Opposition expressed by the aforementioned professionals is based largely on these practical challenges. They warn that increased tax rates would increase brain drain and that many professions would be compelled to reduce the quality and quantity of the services that they provide. To make matters worse, a number of small- and medium-scale business owners, including those engaged in exporting various products, have also started raising concerns about these tax reforms affecting the existence and stability of their businesses as they have had to increase the prices of their products.

While we do not blame the Government for attempting to bring to the right path a tax system that has gone unchecked for decades, it should not believe or try to convince the public that increasing taxes could only affect the public’s income. While it may be the biggest direct impact, it has far-reaching effects on many aspects of the public’s lives. When the public has to pay a considerable amount of taxes which they did not pay before, it affects their household economy, which, in turn, affects nutrition, education, and health, among others. When small- and medium-scale business owners have to pay more taxes, it has a direct impact on the quality of the products and services, overall production, employment opportunities, and investments. We cannot also forget the fact that when the public and businesses find it difficult to pay taxes amidst increased prices of almost every good and service, that has a huge potential to worsen the economic crisis’ burden on the domestic economy.

These are undeniable realities which we could assume even the Government is aware of, although it does not appear to pay adequate attention. However, these realities should not be ignored, because sooner or later, the country will have to witness their consequences. Even if the tax income was increased to an optimum level, if professionals leave the country, if the public’s nutrition and health decline, and if small- and medium-scale businesses’ stability and income plummets, that would be the beginning of more financial issues.

Therefore, while the Government should not repeat the mistake of underestimating the importance of the tax revenue, it should understand that amidst an economic crisis of this magnitude, it could increase taxes only to a limited extent and that it cannot tax the public at the expense of a number of other aspects that have an impact on the economy.