The need to reduce budget deficits by increasing government revenues has been a challenge faced by the Sri Lankan government for some time. The 2011 tax reforms basically aimed to increase tax revenues by expanding the tax base – particularly by removing tax exemptions for public sector employees – while keeping the tax rates “competitive”. At the same time, tax rates have been reduced with the aim of improving tax compliance of PAYE (new reformed tax scheme) tax payers. The research uses National Household Income and Expenditure Survey (HIES-2006/2007) to examine how the 2011 tax reforms would affect both tax revenues and redistribution of income in the country.
