News
World Bank pushes South Asia for tax reforms, pollution levies
Lanka among SA countries with above-average shortfalls in consumption tax revenue
South Asia is grappling with significant fiscal challenges that affect its governments’ ability to provide essential public services. Although its tax rates are often higher than average, the region struggles with low tax revenues, said a World Bank report.
The report explores the reasons behind these low revenues and discusses potential solutions to bridge the revenue gap and strengthen South Asia’s revenue collection.
It said: South Asia faces significant fiscal challenges. At the end of 2023, gross government debt averaged 77 percent of GDP in the region—well above the average of 64 percent among emerging market and developing economies (EMDEs). South Asian governments spent 26 percent of their revenues on interest payments—also well above the EMDE average of 9 percent. This heavy debt burden makes it difficult for them to fund basic government services such as healthcare and education.
At the root of South Asia’s fiscal challenges are low revenues. During 2019–23, general government revenues, excluding grants, averaged 18 percent of GDP in South Asia, the lowest among all EMDE regions.
Although tax rates are often above the EMDE average, the region’s tax revenue is below the EMDE average. All South Asian countries, except India and Nepal, collect less tax revenue as a percent of GDP than countries with similar per capita income.
World Bank’s new research indicates that tax revenues in South Asia are substantially smaller than what they could be—by the equivalent of 1-7 percentage points of GDP. To arrive at this finding, we quantify the revenue shortfall by estimating a stochastic frontier, which derives each country’s tax potential for each type of tax (consumption, personal income, corporate income, and trade) based on the tax rate and potential tax base. The “tax revenue shortfall” is the deviation of actual tax revenue from the efficient frontier.
This shortfall is especially noticeable in taxes on goods and services, but are also sizable for personal income taxes and, in the larger economies, corporate income taxes.
All South Asian countries, except India, have had above-average shortfalls in personal income tax revenue.
Shortfalls in corporate income tax revenues have been above-average in three of South Asia’s four largest countries—Bangladesh, India, and Sri Lanka.
Five South Asian countries—Afghanistan, Bangladesh, Bhutan, Pakistan, and Sri Lanka—have had above-average shortfalls in consumption tax revenue.
Some of these estimated tax revenue shortfalls can be explained by the features of South Asian economies. About 90 percent of the workforce is informal; about 42 percent is employed in agriculture—both sectors that are typically undertaxed. Moreover, financial systems, which can help the tax authorities track income and spending and, thus, raise tax revenues, are less developed in South Asia than in the average EMDE.
To quantify the extent to which these structural features impact tax revenue, the stochastic frontier estimation is expanded to include informality, the size of the agricultural sector, and the level of financial development. Our research found that among the four countries with above-average tax revenue shortfalls—Bangladesh, Bhutan, Pakistan, and Sri Lanka—these country characteristics account for one-quarter to one-third of the overall shortfalls. Even so, the four countries still have tax gaps that are larger than the EMDE average.
The above-average remaining tax-revenue gaps—after controlling for tax rates, potential tax base, and economic structure—point to two priority challenges. First, tax exemptions reduce the amount of taxable income; and, second, the systems for collecting taxes in most South Asian countries are less effective than in the average EMDE.
A review of a large literature of randomised control trials suggests that simple, low-cost tax administration efforts—such as sending reminder letters to taxpayers with delayed payments—can nearly double the revenues collected. Efforts to identify taxpayers tend to be less effective than enforcement measures, suggesting that both are needed for a significant revenue impact.
In addition, because of its exceptionally high levels of pollution, South Asia could also benefit substantially from taxes on pollution. Such policies have been successfully implemented, globally, through pollution taxation or pollution trading schemes and have generated 0.7 percent of global tax revenue worldwide in 2023.
To address South Asia’s fiscal challenges, the region needs to close tax policy loopholes and enhance tax administration, while exploring new revenue sources like pollution taxes.
Death toll rises to 12: Director remanded
Some residents were allegedly chained
Police have come under public pressure to investigate allegations of inhumane treatmenf the residents at an elders’ home in Batagoda, which was also reportedly used as a care centre for persons with special needs, following a devastating fire that has so far claimed 12 lives.
Eyewitnesses who were among the first responders told the media that several residents had been chained inside rooms at the Senehase Kedella Elders’ Home when the fire broke out on Wednesday. They claimed that rescue efforts were hindered as iron chains could not be removed, and that some residents died while being restrained.
Authorities have not yet verified these claims, and Police said investigations are continuing.
Police spokesman ASP F.U. Wootler, contacted for comment, said there were rumours to that effect, but the Police were not in a position to verify the claims until a report from the Government Analyst was received. He said eight survivors with burn injuries were being treated in hospital.
Meanwhile, the Director of the facility had been arrested and was due to be produced before the Horana Magistrate’s Court, Police said adding that he was remanded till June 11.
The death toll from the fire has risen to 12 as of Thursday morning following the recovery of additional charred remains during ongoing forensic examinations at the site. Six others sustained serious injuries and are being treated at the Horana Base Hospital.
Police said 72 residents were inside the facility at the time of the blaze. Of them, 10 died inside the building, seven were injured and hospitalised, while 51 were rescued and relocated.
Survivors were initially housed at Batagoda Junior School before being transferred with Army assistance to another branch of the same care network in Galpatha.
A magisterial inquiry was conducted on Thursday morning. Horana Magistrate Lakmini Vidanagamage visited the scene. The burnt remains were examined and removed under judicial supervision.
Separately, allegations have emerged that residents were required to pay an admission fee of Rs. 75,000, along with a monthly charge of Rs. 35,000 to the centre. Police have not commented on these claims.
The director was taken to the scene as part of ongoing investigations, while forensic experts continue examinations to determine the cause of the fire, which remains undetermined.Anguruwatota Police are conducting investigations.
By Norman Palihawadane and Nishan S Priyantha
Sri Lanka CERT has issued a public warning over the circulation of artificial intelligence (AI)-generated videos falsely depicting President Anura Kumara Dissanayake, Prime Minister Harini Amarasuriya and several other prominent personalities to promote fraudulent investment schemes online.
According to complaints received by the national cyber security agency, the videos have been created using deepfake technology and are being used as part of attempts to defraud members of the public through financial scams.
The images of famous sports personalities and other public figures have also been misused in the deceptive content.
The agency has warned that similar AI-generated material has been used to spread false information relating to investment opportunities, employment offers, as well as matters concerning the country’s economy and tax policies.
According to Sri Lanka CERT, the videos are being widely shared across online platforms and frequently contain links urging viewers to make investments in return for purported profits.The agency has cautioned that these links may redirect users to fraudulent websites designed to steal personal information, financial data and money from unsuspecting victims.
Sri Lanka CERT has urged the public to exercise extreme caution when encountering such content online and advised against clicking on suspicious links or sharing personal information through unverified websites.
“The public should remain vigilant and avoid becoming victims of false information and online fraud schemes,” the agency said.
Sri Lanka CERT has also encouraged internet users to verify information through official sources before acting on any investment, employment or financial offers circulated via social media or other online platforms.
Speaker Dr Jagath Wickramaratne on Wednesday endorsed the certificate on the Inland Revenue (Amendment) Bill, bringing the legislation into force as the Inland Revenue (Amendment) Act, No. 11 of 2026, Parliament sources said.
The Bill, which amends the Inland Revenue Act, No. 24 of 2017, was passed by Parliament on May 19.
The new law introduces a series of reforms aimed at modernising tax administration procedures, improving compliance and enforcement mechanisms, enhancing the accuracy of tax calculations and deductions, and strengthening transparency within the tax system.
The amendments also support broader economic policy objectives and include measures designed to reinforce anti-money laundering safeguards.Among the key provisions of the Act is the mandatory use of Taxpayer Identification Number (TIN) certificates for specified high-value financial transactions.
The legislation also introduces revisions to the calculation of taxable income, clarifies tax exemptions applicable to certain projects and business entities, and expands the scope for information disclosure to relevant authorities.
The amendments are expected to improve the efficiency of tax administration while facilitating greater accountability and regulatory oversight.With the Speaker’s endorsement of the certificate, the Inland Revenue (Amendment) Bill has now become law as the Inland Revenue (Amendment) Act, No. 11 of 2026.
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