ECONOMYNEXT –Central Bank Governor Nandalal Weerasinghe urged the public to become informants to broaden the tax net and thus reduce both overall direct and indirect taxes.

The government has raised Value Added Tax (VAT), an indirect tax to 18 percent from 15 percent with effect from January 1. The move also will see some VAT exempted goods like fuel, gas, health, and educational products are now subject to 18 percent tax.

The new move has raised prices of fuel, cooking gas, foods, private transport charges, and many other goods.

Sri Lankan citizens who are not used to paying higher taxes are also now forced to register for taxes and file for taxes on an annual basis. The move is expected to boost the government revenue to 15 percent of the gross domestic products (GDP) in 2026 from the last year’s 11 percent.

Analysts say most Sri Lankans are not ready to pay any taxes because they do not see any benefits for paying government taxes amid widely reported corruption allegations.

Weerasinghe, the central bank governor, who has been instrumental in navigating the monetary policy and maintaining the price stability of the bankrupted Sri Lankan economy said public needs to do their responsibility to reduce the overall taxes in the future.

“From the public side, they think why they always pay high taxes whereas others are not paying taxes. If the public want to reduce the taxes in the future, what I see is, while they pay their taxes, they should encourage others to pay taxes or inform the authorities (on those who are not paying taxes),” Weerasinghe told a television programme late on Monday (01) hosted by President’s Media Center (PMC).

“That is the way to reduce the amount of VAT or personal income tax they pay.”

Weerasinghe’s comments come as Sri Lanka is desperate to boost the government revenue in line with the commitment it agreed with the International Monetary Fund (IMF) in return of a $3 billion loan.

He also warned that some businesses may be engaging in VAT fraud. In countries where VAT works well, all businesses have to issue a VAT invoice to customers whether they are tax-paying businesses or members of the public.

Unlike income tax, where the state takes part of a person’s earned income, VAT charged from the public is not the income of a business, but a collection made on behalf of the state, analysts say.

“If we are paying PAYE (Pay As You Earn) tax, we have to pay that,” Weerasinghe said, referring to a tax that is deducted at the point of earning.

“But some business people who have the same income do not pay the tax and they keep double receipt books and without showing the real income, they show less income and pay less taxes.”

“If I am paying tax and if I know somebody else is not paying, then I can reduce my tax burden only by adding that person into the tax net.”

“In some places, when you buy goods, they ask if you want the invoice with or without that VAT. If I agree to pay less (for the invoice without taxes), then my tax burden will not ease ever.”