Tackling the twin challenge of providing a concessionary tax regime for Small and Medium Enterprises (SMEs) while aiming to expand the tax base would require a better policy formulation, argues a new study by the Institute of Policy Studies of Sri Lanka (IPS). 
A recently launched Country Study for Sri Lanka is part of a wider study titled ‘Tax Policy and Enterprise Development in South Asia’, which IPS conducted in collaboration with five other leading think tanks in the South Asian region. 

The study examines the impact on small enterprise development of tax exemptions and concessions, value-added taxes, and property tax. A major finding on the tax concessions component was that the lack of awareness of SMEs is excluding many of them from benefitting from available incentives schemes. 

The report highlights the importance for developing countries like Sri Lanka, which has a relatively small and unsophisticated private sector, to get the right policy mix with regard to SMEs. Co-author of the report, IPS Research Officer, Raveen Ekanayake says “This pioneering study finds that a majority of SMEs in Sri Lanka are misinformed with regard to the costs and benefits of tax compliance, and is unaware of the tax concession available to them. Sri Lanka needs to focus more on creating better tax awareness and education amongst SMEs to increase compliance and formalization”.