• Govt. aims to ease burden on low-income segments  
• Plans hinge on revenue from direct tax targeting HNWIs
• Involves introducing property taxes, similar measures

The Government is expected to reduce Value-Added Tax (VAT) and other indirect taxes over a medium-term period once new tax measures targeting High-Net-Worth Individuals (HNWIs) are introduced.

Speaking to The Sunday Morning Business, Treasury Deputy Secretary R.M.P. Rathnayake revealed that the Government planned to give some relief to the public in relation to indirect taxes such as VAT, but that the timeline of such measures would rely on the generation of revenue from direct taxes.

“Our target is to focus on direct taxes rather than indirect taxes, so that the burden on the poor segments of society will be lessened. However, this target cannot be achieved overnight,” he observed.

He stated that in order to reduce indirect taxes, the Government would have to improve its revenue generation through direct taxes, which required the introduction of new tax measures such as property taxes. 

Accordingly, he noted that direct measures targeting high-net-worth-individuals would have to be introduced, similar to the inheritance tax proposed by the IMF.

However, Rathnayake conceded that the introduction of such new direct tax modalities was not possible in the near term and that they would be introduced over a medium-term period.

It was revealed last year that in terms of the revenue generation plan that the Government had agreed with the International Monetary Fund (IMF) under the SDR 254 million (about $ 337 million) Extended Fund Facility (EFF), Sri Lanka would be introducing property and inheritance taxes by 2025.

According to the programme documents, the following assurances were given by Sri Lanka: “To reach a primary fiscal surplus of 2.3% of GDP by 2025, we will revamp the property tax system and introduce a wealth transfer tax. 

“In particular, we will introduce a nationwide real property tax and adjust the system of transfers between the central and provincial governments. We will also introduce a gift and inheritance tax with a tax-free allowance and minimal exemptions. Preparatory work for these tax reforms will commence by mid-2023, supported by IMF technical assistance.”