Tax Reforms To Make Businesses More Viable

By Hema Senanayake –November 27, 2015

Hema Senanayake

Global Economic Revolution Is Overdue: Part 4

Sri Lanka intends to make strong reforms to tax regime. This was told by the Minister of Finance, Ravi Karunanayake during his budget speech of 2016. He said that, “…However, it is time to deviate from temporary solutions but endeavor to create a tax regime based on strong reforms to move forward, implementing such reforms which will have far reaching benefits to the country.” (Paragraph 63, Budget speech -2016)

We agree that strong reforms of taxation are needed. There is no argument about the need of reforms. Yet, the argument is about the basis or the principles of reforms. In fact this is one of the topics I intended to discuss through this column. I guess it is appropriate to discuss it now. I like to begin from fundamentals of economics. These fundamentals may vary from text book fundamentals.

Since, I have been discussing through this column about developing a new economic model let me first submit the possible objectives of taxation under the new model. Basically it is twofold. One objective is to find money for the government to produce common interests for the society. In regard to this objective of taxation I have written previously, hence in this article I will not discuss about it.

The second objective of taxation is to make businesses more viable – and this means that we are going to reform the tax regime in order to make businesses more viable. This does not necessarily mean that we are going to reduce taxes or give more tax concessions to businesses, instead this intimates that we are going to tax, subjected to a small adjustment, the unutilized consumable income in the economic system no matter such money accumulates in rich private households or under the balance sheets of businesses. Once we do this the income redistribution will not be an issue any more hence as at now I ignore “income redistribution” as an objective of taxation.

Therefore, in regard to “strong reforms” we should be interested not about determining the percentage of indirect taxes and direct taxes. Instead our goal must be to bring in necessary reforms in order to achieve above mentioned two objectives namely to collect revenue for the government in order to produce common interests and to make businesses more viable.Read More