COPF urges reevaluation of tax mechanism to prevent govt. revenue loss

The Committee of Public Finance (COPF), at its most recent meeting, has examined the effectiveness of recent tax increases on tobacco and liquor, aimed at discouraging consumption and boosting government revenue.

Drawing attention to the Laffer curve in taxation, the COPF observed a decline in government revenue over the past two months compared to the same period last year, attributing it to higher taxes that have led to increased smuggling and the adoption of alternative measures.

At the meeting held on Wednesday under the chairmanship of MP Harsha de Silva, the COPF members recommended a thorough analysis of the inflation index to guide tax adjustments and research into existing tax systems to prevent revenue loss.

The COPF also raised concerns about the failure of the Excise Department to address issues such as non-payment of taxes and the use of fake stickers by liquor license holders, despite instructions from the Ministry of Finance. Expressing dissatisfaction over the lack of action, the Committee emphasized the urgency of implementing recommendations to safeguard government revenue.

Questions were raised regarding the Ministry of Finance’s decision-making process on taxing essential goods, given inefficiencies in revenue collection from liquor license holders. It was revealed that the Excise Department continues to operate manually, hindering efficient revenue collection and enforcement against illegal activities.

The COPF emphasized the need for digitalization to address these challenges, expressing surprise at delays attributed to cost concerns. They urged immediate measures to solicit quotations for digital software to prevent corruption within the Excise Department.

Further, COPF approved three Orders under the Excise (Special Provisions) Act, as detailed in Gazette No. 2364/36, Gazette No. 2361/44, and Gazette No. 2364/35.

These Orders, effective from 01 January 2024, amend business hours for liquor licensed establishments and revise excise duties on various tabocco and alcoholic products. The approval came following extensive discussions during COPF meeting.

MPs Patali Champika Ranawaka, U. K. Sumith Udukumbura, Mayantha Dissanayake, Chandima Weerakkody, Madhura Withanage, Dr. Nalaka Godahewa, Isuru Dodangoda, and officials representing the Excise department and the Department of fiscal policy were present at the Committee meeting held.