The Ceylon Chamber of Commerce, raising concerns about the proposed increase of the Value Added Tax (VAT) to 18%, says the move could lead to a further decline in consumption.

While recognizing the government’s commitment to revenue enhancement in alignment with International Monetary Fund (IMF) obligations, the Ceylon Chamber said it is imperative to evaluate the broader economic ramifications of such a decision.

The current economic landscape, characterized by escalating income taxes, elevated electricity tariffs, and rise in fuel prices, suggests that an additional VAT increment will further strain consumers purchasing power, the Ceylon Chamber noted in a statement issued today (Nov. 03).

“As consumer spending plays a pivotal role in our GDP growth, there’s a significant risk that this tax increase could lead to a further decline in consumption. Household consumption expenditure growth has been contracting since the end of 2021.”

The Ceylon Chamber pointed out that at a time when Sri Lanka’s focus should be on reviving economic growth through reform measures, such hikes stands to inadvertently lead to further economic contraction, potentially offsetting the intended revenue gains.

On that account, the Ceylon Chamber has recommended that the government explore alternative fiscal strategies, such as expenditure rationalization.

By refining budgetary practices and reducing undue borrowing, a more balanced and sustainable fiscal path can be charted, the statement read further, adding that the pressing need to modernize the revenue collection mechanisms is evident.

““Challenges, such as the Inland Revenue Department (IRD) issuing tax default notices spanning several decades, highlight the inefficiencies of our current system. The Revenue Administration Management Information System (RAMIS) demands further enhancement for maximum efficacy. A thorough digital transformation, leveraging systems like RAMIS, is crucial for streamlining processes and optimizing revenue collection.

The Ceylon Chamber assured that it remains committed to constructive dialogue with the government on these crucial matters, aiming to achieve a fiscal approach that ensures robust and sustainable economic growth for the entire nation.