Madhushani, P.Y.N.Jayawickrema, Ananda2025-11-122025-11-122015-09-23Peradeniya Economics Research Symposium (PERS) -2015, University of Peradeniya, P 9-1623861568https://ir.lib.pdn.ac.lk/handle/20.500.14444/6528Introduction From 1950s to the present, the economic structure of Sri Lanka has changed significantly.Six or seven decades ago the country was highly dependent on its agricultural sector. But the GDP of the country today is mostly generated in service and industrial sectors. Since domestic agriculture is a small scale subsistence sector, one may not expect high contribution of that sector to the tax revenue. But the growth of industrial and service sectors results in large corporate sector and raises the income of employees of the sectors. Therefore, the expansion of services and industrial sector is expected to generate high positive impact on the tax revenue, especially income tax revenue. This study focuses on long-term tax elasticities of income taxes of Sri Lanka in relation to changes in the sectoral composition of output. Tax buoyancy is an indicator to measure the efficiency and responsiveness of revenue mobilization in response to growth in the tax base, GDP or national income. A tax is said to be buoyant if tax revenue increases more than proportionately in response to a rise in the tax base. If the tax revenue shows less responsiveness to tax base, that type of taxes fails to generate enough revenue for the government in the long run. Ahmad (1994) finds that the expansion in agricultural and service sectors is not very important in the determination of tax revenue. But the industrial sector growth reports a positive impact on tax revenue collection of developing countries. Tancy and Zee (2001). find the uncertainty of agricultural income and informal sector income as a reason for low tax collection in developing countries. Indraratne (2003) cites tax evasion, tax avoidance and tax incentives as major reasons for the low responsiveness of taxes to the national income. Waidyasekar (2004) and Jayawickrama (2008) reveal that the buoyancy of corporate income tax and goods and service taxes are low and that caused a decline trend in the average tax ratio. There are many studies that focused on tax buoyancy of Sri Lanka using GDP as the tax base. No studies used segregation of tax based, as agriculture, industry and services incomes to examine the responsiveness of taxes to changes in sectoral output.en-USTax elasticityStructural changeDeclining tax ratioArticle