Statement of the Problem: There is a problem in Sri Lanka
which is, the percentage of the direct tax revenue in Gross
Domestic Production (GDP) of the country is continuously
reducing in the every year here the indirect tax revenue was
16% in GDP in 1990s however it was as 9% in the GDP in
2012. Also the direct and indirect tax revenue are playing major
role in the total revenue of the country so the tax revenue is
important for the reducing the budget deficit of the country. Sri
Lanka is facing the budget deficit continuously also the
government of Sri Lanka has done and doing several changes in
tax policies to reduce the budget deficit through increasing tax
revenue however they are unable to reduce the budget deficit. In
2012 Sri Lanka had budget deficit 488,967 million LKR as well
tax revenue 845,297 million LKR4
, here we can show that
proportion of the tax revenue and budget deficit is 1:0.578, it is
not good shine for any country specially Sri Lanka because it is
one of the developing country. Sri Lankan government has
done so many changes in tax policy from 1990 to 2012, there
were several party had the power of Sri Lanka as well there
were number of finance minister and president in the period
even though they could not be done major positive changes. Tax
policy changes can be considered withdraw turnover tax,
introduced value added tax, nation building tax, economic
service charge, tax exemption to fishery, agriculture and others
withdraw capital expenses, some other exemption from income
tax such as one free vehicle allowance and others. The
government has to take necessary steps to collect tax revenue
and improve budget deficit as positively that mean reduce
budget deficit so that they have to know about tax policy
changes whether impact on tax revenue if impact how it is
impact. The following Research Questions (RQ) were
formulated in this research