The Department of Inland Revenue has entered into agreements with two State banks where tax returns can be paid via credit cards.

State-owned Bank of Ceylon and People’s Bank have entered into an agreement with the Department of Inland Revenue which allows their corporate and retail clients to pay taxes with their credit cards, Commissioner of Inland Revenue, Mahinda Medagoda, told journalists yesterday.

According to Medagoda, corporate and retail (individuals) credit card holders in Colombo can now use their credit cards to pay in their tax returns. This would apply to only retail credit card holders of People’s Bank also of Colombo.

The government earlier this year appointed a commission to look into reforms to the tax administration which would be ready for consideration when the budget is prepared after April 2010.

A senior economist said the ad hoc changes to taxation is an impediment to growth and despite some gains in achieving economic stability after the war, fiscal and macroeconomic issues are still causes for concern.

"Ad hoc policies on taxation have accumulated over the years. Sri Lanka has 25 taxes administered by the central government while there are about 20 other taxes that come under provincial governments. In developing countries, the number of taxes amount to about five or eight," Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies, said addressing the Sri Lanka Economic Summit last July.

The government’s revenue for the year is being squeezed to the fallout of the global economic crisis. Industries are experiencing a fall in revenue and this in turn impacts on the taxes that go to the government.

The government’s response has been to increase the Nation Building Tax, a new tax introduced with the last budget, to 3 percent. However, some sectors have been given exemptions from this tax.

Dr. Kelegama, who is also a member of the tax reforms commission, said government revenue accounts for 14 percent of GDP.

"This must be increased to about 20 percent if we are to achieve our economic growth targets," he said.

Under the US$ 2.6 billion IMF standby facility Sri Lanka is expected to increase taxes by 2 percent of GDP by 2011 by broadening the tax net instead of increasing tax rates and introducing new taxes.

An IMF review mission in Colombo told journalists last afternoon, that the fiscal deficit of 7 percent of GDP was achievable and that the government has so far performed well, although revenues are low due to the fallout of the global financial crisis which reduced tax returns with falling import volumes.

The IMF review mission says the government can achieve deficit targets through a combination of reforms to the tax administration and rationalisation of expenditure.

The fiscal deficit has expanded a further 30 percent during the first nine months of this year with revenue improving by 12 percent and total government expenditure and net lending increased by 19 percent while capital expenditure declined 2.7 percent.

The overall budget deficit for the first nine months of 2009 reached Rs. 322.6 billion or 6.5 percent of GDP increasing 30 percent compared to a deficit of Rs. 246.9 billion for the corresponding period of 2008 which was 5.6 percent of GDP, latest data from the Central Bank shows.

The fiscal deficit increased by 56.42 percent to Rs. 297.2 million during the first seven months of the year from Rs. 190 million for the same period last year.