Tax evasion by top earners to blame for revenue shortfalls: Experts

Tax expert N.R. Gajendran says Sri Lanka’s inability to meet tax revenue targets despite tax hikes is due to the tax leakages spurred by tax evasion.

Joining Ada Derana’s current affairs program “@HydePark”, Gajendran further expressed that digitalization of proceedings of the Inland Revenue Department (IRD) will significantly contribute to bolstering efficiency while also eradicating loopholes which facilitate tax evasion. 

“All the taxes have gone up, but we’re still struggling to achieve 13.9% to 14% tax revenue. Next year, 2025, we’re hoping to reach 15%, which is still below what we achieved in the early 90s, 22% tax to GDP ratio. Most of the countries, even developing countries achieve 18% - 22% taxes”, Gajendran mentioned.

“If you want to have macroeconomic stability, when we consider a developed country, tax to GDP ratio should be about 28% - 30%. Now we still have this gap. We’re collecting so much from people and we’re still falling short. Next year, at our best, we’ll reach 15%. We had 22% before, in 2022. Where is this 5% - 7% gap? I’m telling, that is the evasion and fraud and corruption”, he added.

“This money is not with the small taxpayers. It is with the big taxpayers. Reforms cannot take place when it is corrupt. If higher-ups are corrupt, all subordinates will be corrupt, as the former President said,” Gajendran emphasized. 

Meanwhile, Tax Consultant, Attorney-at-Law Suresh Perera revealed that tax evasion is most often committed by top tax payers and not those in the lower tax brackets, although they have been at the centre of attention when drafting tax legislation. 

Commenting regarding the matter, Perera emphasized the tax leakage exists due to improper enforcement of laws, reiterating that the tax leakage takes place due to evasion by top tax payers.

“The law is there, but it’s not been followed. What is happening in here is that now the focus is on small man,” perera added.

Furthermore, he emphasized that policymakers focus on individual tax payers, stressing that the policies should be made focusing on large corporations, from which a huge tax revenue is being collected.

Watch the full programme above…