Govt. Denies New Tax Burden; Defends Structural Tariff Adjustments 📈

• Overview & Revenue Context - Deputy Minister of Finance Dr. Anil Jayantha Fernando rejected social media claims regarding eight new tax measures, calling them a "distortion of facts". - Tax revenue expanded from 7.3% of GDP in 2021 to 15.4% of GDP. However, compliance issues remain high: 52.7% corporate and 67.8% individual non-filing rates in 2025, with ~Rs. 2.1 Trillion in tax defaults. • Key Policy & Sector Adjustments - Excise Duty: The 6% increase in January 2025 was an automatic adjustment under the existing inflation indexation formula (following a 14% rise in 2024), not a new tax. - Vehicle Tariffs: Imposed a temporary 50% customs duty surcharge on private vehicle imports to ease foreign exchange pressure from Middle East tensions and safeguard reserves. - Corporate & Sin Taxes: Corporate tax rates for alcohol and tobacco companies increased from 40% to 45% due to higher profit-generation capacity. - Service Sector & Digital Platforms: Service exporters brought into the tax net capped at 15% (down from previously proposed 30%–36% rates). Digital delivery/ride-hailing services now pay VAT to align with traditional operators. - Withholding Tax: Tax at source on interest increased from 5% to 10%, with tax-exempt individuals able to file affidavits for full exemption. - Financial Services: Consolidated VAT (18%) and SSCL (2.5%) into a unified 20.5% rate base. • Outlook & IMF Assessments - The IMF highlighted that future fiscal progress hinges on tax compliance rather than rate hikes. Elevating IRD operational capability could yield ~1.9% of GDP over five years.