Taxation is a critical tool for sustainable development, playing a vital role in reducing poverty, ensuring food security, and enhancing social protection. In light of these important issues, the Institute of Charted Accountants of Sri Lanka hosted its Annual Economic and Tax Symposium under the theme “Shaping Fiscal Foundations: Tax Policy as a Catalyst for Sustainable Economic Growth,” on 1st and 2nd of August, 2024.

Gayani Hurulle, Senior Research Manager at LIRNEasia, was a panellist at a session titled “Taxation on Environmental, Social and Governance (ESG) Factors: Achieving the United Nations’ Sustainable Development Goals (SDGs) and International Trade and Tax Policies” at the symposium. Other panellists included M. Ravindrakumar, Customs Management Expert; Ayesha Ashanthi, Commissioner, Department of Inland Revenue; and Dr. Lyla Latif, Technical Expert on Tax and SDGs at the United Nations Development Programme. The session was moderated by Sarah Afker, Chairperson of the Faculty of Taxation and Partner/Head of Tax at BDO Partners. Gayani shared insights on the role of taxation in alleviating poverty and increasing social protection, drawing on LIRNEasia’s work on digital taxation.

In her comments, Gayani highlighted the critical issue of tax avoidance by large multinational corporations, particularly digital multinationals that exploit loopholes and the lack of robust legal frameworks to evade taxes.  She emphasised the necessity for comprehensive laws to address this challenge, noting the complexities of enforcing tax laws on companies without a physical presence in a country.

She also brought to light the pressing issue of workplace protection and safety in the context of the gig economy. “Today, the line between who’s a worker and who’s not is becoming increasingly blurred — for example, take your Pickme or Uber driver. How do we decide which, and how much of, benefits they get?” she questioned. Gayani also mentioned that while some countries consider gig workers as self-employed, others, like the UK, have mandated benefits such as the national living wage and paid holidays for Uber drivers. She suggested that Sri Lanka, with its high levels of informality, could learn from such international precedents.

Gayani delved into the role of taxation in reducing poverty and enabling social protection, asserting that government expenditure on merit goods like healthcare and education is crucial. She cited LIRNEasia’s 10,000-sample survey, which revealed that 4 million people in Sri Lanka fell into poverty over the past four years, underscoring the urgent need for effective taxation to support social safety nets. “We cannot and should not rely on borrowing to finance these. So, taxation is necessary to keep these going. There’s an additional layer of scrutiny that is needed to ensure that funds go to the right place. For example, Sri Lanka had committed to spending at least 0.6% of GDP to be spent on safety nets from 2024 — this is even greater than the 187-billion-rupee target in 2023. We need to see if this target is met,” she said.

She also addressed the balance between direct and indirect taxes, noting that while indirect taxes like VAT constitute a significant portion of tax revenue, they disproportionately affect the poor. Gayani called for expanding the direct tax base to alleviate this burden, despite the inherent challenges. She mentioned that currently, about 70% of tax revenue comes from indirect taxes, and there have been long-standing conversations about reducing this contribution to around 60%.

She concluded by emphasising the importance of developing tax policies that adapt to the evolving digital landscape and address the needs of both the economy and the population.

Photo courtesy: CA Sri Lanka