In addition to serving as a source of government revenue, taxation helps bridge the wealth gap. Taxation is also used as a disincentive on the consumption of demerit goods. Inflation rates and the balance of payments can be controlled and maintained with taxation, which can pave way for further economic growth and development.

Simplifying The Tax System

The tax system in Sri Lanka contains import taxes and local taxes. Import tax includes Customs duty, excise duty, cess levy, special commodity levy, ports and airport development levy, value-added tax (VAT) and nation building tax, while local taxes include several taxes such as income tax, VAT, nation building tax, economic service charge and stamp duty.

Sri Lanka’s tax system is complex, and policymakers have taken steps towards simplifying the tax structure by removing nuisance taxes and simplifying rate bands. Most of the revenue comes from indirect taxation, and attempts are being made to shift the taxation to a more direct tax perspective. The revenue authority has sought various measures to increase the taxpayer base, ease revenue collection and to make the system both efficient and tax payer-friendly. Toward this end, the Inland Revenue Department (IRD) under the Ministry of Finance is looking to replace its legacy system (manual filing system albeit with some computerised records) with a landmark change similar to the Singaporean context.


The automated system will enable taxpayers to make their payments online from the convenience of their offices or homes. The IRD is moving towards the full automation of its core activities in a bid to improve efficiency, transparency and financial flexibility in a government burdened by decreasing revenue. The revenue target of the IRD has been increased to LKR602bn ($4.3bn) for 2016 from LKR516bn ($3.7bn) in 2015. Revenue administration management information system (RAMIS) phase one and two of the IRD will soon go online ensuring effective management in revenue collection and administration while integrating with other relevant state institutions to streamline its operations.

Efficiency Boost

This will be a more accountable system for increasing revenue collection by providing access to timely and accurate information, monitoring collections, and enabling IRD to reach out to taxpayers in a more efficient and effective manner. Integrated Treasury Management Information System of the Finance Ministry will be interfaced with RAMIS to ensure that there is fiscal revenue consolidation, having accounted for and having reconciled all aspects on a more frequent basis, following an initial study of the Treasury business process and operations. This is a joint initiative with the Asian Development Bank as part of its fiscal management efficiency project. The fiscal management efficiency project will address the inefficiencies in the revenue management system by establishing RAMIS aimed at automating all the business processes of the IRD relating to tax administration. The increased revenues resulting from the implementation of RAMIS will create the fiscal space for the government to channel the resources towards addressing needs of less developed regions. The core functions, which will be IT-enabled after implementation, are registration, returns, tax payments, appeals, collections, cancellations, directions and clearances.

RAMIS will also support electronic filing of tax returns and provision of online taxpayer services. Upon development and testing of all functions of RAMIS, the expansion of the system to provincial sites of revenue offices will be undertaken as sites are identified by relative importance, infrastructure availability and communications capability.

OBG would like to thank BDO for its contribution to THE REPORT Sri Lanka 2016