📈 Calls Mount for Tax Reform in Sri Lanka Amid Living Cost Pressures

Protests in Colombo led by the Jana Aragala Movement and Frontline Socialist Party on Oct 3 have underscored public strain over high direct taxes and regressive indirect levies (e.g., VAT) affecting essential goods. Analysts urge the government to balance fiscal discipline with targeted relief to protect consumer spending, small business growth, and curb brain drain. • Macro vs. Micro Reality: While the NPP administration stabilized the economy, halted collapse, avoided hyperinflation, and expanded social safety nets, high living costs continue to strain working and middle-class households. • Proposed Tax Shift: Recommends shifting from regressive indirect taxation toward broader direct taxation, targeting high earners and closing loopholes. • Expanding the Direct Tax Net: Focuses on integration between the Inland Revenue Department (IRD), customs, financial institutions, and motor registries, enforcing compliance for high-value transactions and professional licensing. • Sector Reforms: • Real Estate: Rationalize blanket tax holidays (e.g., Strategic Development Projects Act exemptions) on luxury residential developments to preserve revenue. • Financial Markets: Tax capital gains on Colombo Stock Exchange (CSE) shares (5–10% rate) to level the field with real estate and private share gains. • E-Commerce & Digital Economy: Establish simplified digital portals to capture unrecorded revenue from ride-hailing platforms, e-commerce, and digital freelancing. • Administrative Upgrades: Shift IRD toward a customer-centric model with digital mobile filing apps, flat-rate options for MSMEs, automated risk-scoring, and voluntary self-correction mechanisms.