Revenue targets caught between the devil and the deep blue sea

The government is heading for a revenue shortfall this year due to a delay in the implementation of several tax amendment proposals in the 2016 budget as well as VAT and NBT revisions made by the Prime Minister in April.

Central Bank Governor Dr. Indrajit Coomaraswamy on Tuesday warned that the Government’s revenue targets could come under pressure unless the proposed VAT increase was implemented as soon as possible.

Following the Supreme Court’s decision to nullify the 15 per cent VAT revision recently based on a fundamental rights petition, tax officers have encountered difficulties in collecting revenue from several other taxes including the NBT, Income Tax, Corporate Tax, Economic Service Charge (ESC) which are also yet to get parliamentary approval, a senior Inland Revenue Department (IRD) officer, who wished to remain anonymous, told the Business Times.

He said that achieving the target of Rs.602 billion set for 2016, up 16.6 per cent from Rs.516 billion last year, is near impossible due to the non-implementation of several increased taxes proposed in the 2016 budget plus VAT.

However Finance Minister Ravi Karunanayake revealed in a recent media statement that the government has been able to earn considerable revenue in the first seven months this year “owing to its efficient tax collecting mechanism”.

Although the Finance Minister had announced that IRD revenue has gone up by 26 per cent to Rs. 242.81 billion during the first seven months this year from Rs.191.60 billion in the same period last year, this was below the targeted revenue of Rs. 351.16 billion for January-July 2016 in terms of provisional IRD data received by the Business Times.

Provisional figures also show a shortfall of Rs.108.35 billion between targeted revenue and collected revenue during the first seven months this year.

Accordingly total expected revenue for whole year at the current rate of revenue collection would be Rs. 416.24 billion missing the 2016 revenue target of Rs.602 billion by Rs.186.76 billion.

The Central Bank Governor told journalists on Tuesday that the Government’s ambitious fiscal consolidation plan would be disrupted if tax increases were not approved by Parliament in the next few months.

Meanwhile a senior cabinet minister told the Business Times that the VAT Amendment Bill is likely to be taken up after the presentation of the 2017 budget on November 10. IRD targeted revenue for 1st seven months of 2016: Rs. 351.16 billion IRD actual revenue in January-July 2016: Rs. 242.81 billion Shortfall between targeted revenue and collected revenue: Rs.108.35 billion IRD targeted total revenue for 2016: Rs.602 billion Expected total revenue at the current rate of tax collection in 2016: Rs. 416.24 billion (provisional data) Expected shortfall between targeted revenue and collected revenue: Rs. 185.76 billion