Sri Lankan tax administration has been beleaguered for a long time from a lack of Investment in the collection infrastructure and the training and development of Inland Revenue Officers. It seems unclear how a change in the law will resolve the above stated lack of investment.
In addition to the new law the Inland Revenue Department is also introducing a new Revenue Administration Information System. The steep learning curve due to the combination of new law and new IT system will further burden the beleaguered administration
Industry-specific policies to be eliminated
Policy simplification is a mantra repeated by many governments and it seems that when it comes to Income Tax,this new law may be the simplest. Benefits and exemptions have been removed for most industries, excluding a few select industries such as agriculture and tourism. Hence, it is a success in this regard, however it is important to appreciate that different industries have varied requirements, are at varied stages of development and benefit the country differently.
This new law is definitely strengthening tax collection, but appears to be at the expense of important activities such as research, brand promotion and training as the triple deduction benefit related to such activities have been removed. Additionally, the new law does not encourage the setup of global MNCs in sri lanka, the repatriation of income for services and investments in fixed assets. This is a major shift in policy that may affect our foreign currency flows and reserves.