There is growing concern that the International Monetary Fund (IMF) would advocate for a hike in the VAT rate in order to close the large revenue deficit that Sri Lanka is experiencing. 

According to new data, tax revenue collection as of mid-August is not meeting projections, worsening the government’s financial woes.

High levels of corruption, particularly among small and medium-sized taxpayers at the regional level, and inefficiencies in tax collection by officials have made the problem worse.

The malfunctioning RAMIS system has made things even more complicated by preventing the issuing of tax assessments for the period beginning in 2018/2019. 

Due to the prevalent perception that non-compliance bears no immediate penalties, or any punishment this technological difficulty has made taxpayers reluctant to comply with their obligations. 

The environment for tax collection is deteriorating due in part to the backlog of tax assessments and the ineffective enforcement.

The IMF’s commitment to fighting corruption should receive a lot of attention because significant action against corrupt officials has not yet been taken by the top chair at a satisfactory level. 

Both the Investigation unit and the High Net Worth taxpayers’ unit revenue collection is very low even though there is a potential to generate more revenue if the officials (some) are controlled by the top management. 

Core issues of corruption and poor management have not been adequately addressed, notwithstanding the recent leadership actions of a few regional tax officers. 

The effectiveness of the current policy is called into question in light of this circumstance, as is the potential impact of further increases in the VAT rate on businesses and individual taxpayers.

Concern over whether increasing VAT rates will be enough to make up for the revenue gap in the face of these difficulties is mounting, as is the question of whether more extensive reforms are required to enhance tax collection and enforcement. 

The state of affairs highlights the urgent need for sensible measures to win back taxpayer trust and guarantee that revenue collection satisfies the needs of the national budget. 

Besides, it is necessary to assess the effectiveness and competency of the top management team, since they have a direct impact on the overall performance of the tax department.