In Sri Lanka, at present there is considerable political bias on collection of income tax, that has deprived in the past two years many millions in revenue to Inland Revenue Dept. Therefore to uplift the economy there is a need to reduce the risk of political interference on the taxing process.
Compare this to revenue forecasting in the UK; there are three main taxes—personal income tax, national insurance contributions (NICs) and value added tax (VAT)— account for about three quarters of all tax revenues and that this has been stable over a period of time.
The composition and trends of tax revenues in the UK is similar in its tax composition to both the US and France, where the same three types of tax dominate revenues.
On examining these three taxes in UK, in constant price terms, revenues have grown slow and steady over time, broadly keeping pace with growth in real GDP.
Further it is mainly undertaken by an independent body which publishes forecasts at the level of receipts for individual taxes. It considerably reduces the risk of political bias in these revenue forecasts.
Under this sinario, all Sri Lankans agree that taxes would help to improve the economy, thus opening a separate tax file to bring above 18 years of age into the tax-paying net is the right decision. Further it would help, if government would re-examin all indirect taxes with a view to reduce them. Whatsmore the state should also consider eliminating unnecessary indirect taxes to make the total tax system reasonable to all citizens.