Past tax amnesties in SL not translated to higher income tax revenue - study | Daily News

Past tax amnesties in SL not translated to higher income tax revenue - study

The past tax amnesties in Sri Lanka have not translated to a higher income tax revenue or greater tax files, according to a study done by R.M. Jayasinghe (2010).

The study analyses the impact of tax amnesty on income tax using the number of tax files and personal income tax revenue during the tax amnesty period. According to an article published in publicfinace.lk.

This is despite a higher number of declarations being recorded in 2003 and 2009.

This conclusion thereby suggests that the tax amnesties were ineffective in achieving their goal.

Furthermore, it may lead to lower tax compliance as they could create an incentive for non-compliant entities to avoid declarations until the next amnesty.

“Further, they discourage compliant taxpayers since non-compliance is rewarded; tax evaders can be indemnified with a low one-off payment, whereas the compliant has paid the full tax rate.

Frequent tax amnesties can also result in a loss of government revenue due to the foregone collection of previous years’ taxes. Together, these factors result in undermining the credibility of the tax system. For this reason, the IMF in a report titled Tax Amnesties: Theory, Trends, and Some Alternatives (2009), concludes that repeated tax amnesties generate diminishing revenue.”

The article further says the Presidential Commission on Taxation chaired by Professor W.D. Lakshman in 2009 recommended that governments refrain from providing tax amnesties in the future apart from under very special circumstances. “ The Commission proposed alternative tax reforms in three broad categories to improve tax revenues, including (1) expanding the number of tax registrants; (2) improving enforcement; and (3) enhancing tax administration to improve compliance.

A specific recommendation of the Commission on the subject of effective enforcement is stated as, “Firm policy statements indicating that there would be no tax amnesties in the future. As the Moral Hazard element attached with tax amnesties encourages underpayment of taxes” (p. 329).” On July 9 2021, the government gazetted a new finance bill aimed to indemnify individuals who voluntarily disclose their hitherto undisclosed income—that is to provide a tax amnesty.


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