The Government recently relaxed the Pay As You Earn (PAYE) taxes by excluding non-cash benefits. The new circular issued by the Income Revenue Department (IRD) showed that the Government would exempt some part of the allowances for fuel, vehicle, drives, hotel and accommodation as well as residences provided by the employer (public or private sector) among many non-cash benefits which were added to a maximum of 36 percent tax.
These also include the value of company shares or the share options offered by employers, the value of telephone allowances and concessionary rate loans obtained by employees.
The Sunday Observer spoke to several academics and professionals in the economics field to elicit their opinions on this latest move.
According to Prof. Sirimal Abeyratne of the Department of Economics at the University of Colombo, at a time when the country is facing a national disaster due to an economic crisis, the management of the government’s income and expenditure must improve, and also, according to economic principles, taxation should be reasonable.
“My stance is that everyone must pay taxes. Many are not used to the concept. All institutions and people must pay taxes but we have not reached that point yet. Only about 500,000 persons pay personal taxes in Sri Lanka raising the question whether this is enough in a population of 22 million. Here 79 percent is earned through indirect taxes while 21 percent are direct taxes as the Government has no proper method to levy direct taxes.
The Government has no inkling of the people’s revenue and expenditure. They only know the salaries of State and private sector employees. They make up these 500,000 taxpayers. But millions of others do not pay taxes. According to the Rs. 100,000 threshold, a large number of people will have to pay taxes. But they won’t as the Government has no plan or method to do so,” he said.
But according to Abeyratne, he is not pleased with the Rs. 100,000 threshold. “My opinion is that every citizen must at least pay Rs. 10 in taxes as we can then reduce indirect taxes. But we will need an extensive plan for this to ascertain the people’s revenue and expenditure. Therefore, revisions will not work unless this plan is formulated,” he said.
He also expressed his concerns that the country has made enough sacrifices when it comes to expenditure. “If the ministers and MPs receive benefits by way of residences, vehicles, security and others they must also pay taxes on these. But the revision has removed this and it is unfair. For example, a person earning Rs.300,000 must pay Rs 35,000 in tax. But a person who gets the same salary and a plethora of benefits also pays the same.” he said. “This tax regime is commendable but these weaknesses must be corrected,” he said.
President of the Association of Sri Lanka Economists, and former Head of the Economics Department of the University of Colombo, Prof. Wijitapure Wimalarathana Thera commenting on the revision said that this new amendment on non-financial benefits such as housing, vehicles, fuel, furniture, telephone and subsidised interest has provided a great relief to the employees of both the public and private sectors.
“Relief has been provided for interest and housing, especially for those in the private sector. The rest benefits State sector employees mostly. However, some limitations have been imposed. Having said that, the majority of people in various institutions of the Government and private sector use one vehicle, one driver and a certain amount of fuel. These are largely used without any restriction by ministers and State ministers. They are maintained under various departments and ministries. Therefore, it will not fall under this revision. Therefore, they must be regulated and limits imposed. It is problematic that ministers and MPs have not been included in the tax regime,” he said. This relaxation has mostly benefited those who are using these facilities or non-cash benefits in excess as they have not been covered by this circular.
According to the Head of the Department of Economics Studies, University of Kelaniya Prof Nawaratne Banda, this relief granted by the circular will only apply to a handful and a privileged few. “Therefore, the relaxation of taxes has only managed to protect their allowances and benefits. Only a District Secretary or a Chancellor will get such benefits in the State sector.
The addition of a significant tax on the salary is the greatest injustice. Taxes must be levied but the people cannot bear this tax regime in this economy. This revision is just an eyewash. No one will fall for it. People have been paying taxes all along. But 36 percent is one that cannot be borne. Professionals believe it must be reduced to around 20 percent.
The rich are not in the State sector. They have struggled to reach where they are now and buy land to build a house or get a vehicle. They have achieved these by taking out loans according to their salaries. But now the loans have become around 60 percent of their salaries due to the tax regime. These types of revisions will not provide any solution. Taxes must be reduced to 20 percent,” he said.
According to him, the former percentages levied will be sufficient and will benefit the citizenry. “Generally, when there is an economic recession in a country, any Government does not charge high taxes. Taxes are levied only after the Government intervenes and brings the economy to a certain level. Then the Government revenue will increase automatically. Our idea is that the tax base must be changed. There are millionaire businessmen who do not pay taxes. The Government expects to collect about Rs.9 billion from this. But 700 to 800 billionaire businessmen have evaded paying taxes all this time. The Government’s policy should be to catch them in the tax net,” he said.
Prof. Aminda Methsila Perera of the Accountancy Department of the Wayamba University said there is no debate that a Government has to earn an income through taxes. “Ninety percent of the Government revenue is derived from taxes. There are direct and indirect taxes. We have a crisis regarding indirect taxes as everyone, rich or poor, has to pay these taxes such as the Value Added Tax (VAT). A tax policy should feature more direct taxes and less indirect taxes. On the other hand, in Sri Lanka indirect taxes such as VAT account for 79 percent of the taxes levied. This is why we have suggested a ratio of 60 percent indirect taxes and 40 percent direct taxes.
There is no issue with having more direct taxes. But at a time when we are facing a huge economic crisis, when the people’s incomes have not risen, when the prices of goods and services have gone up exponentially, when the Rupee has depreciated by a considerable margin, the people are suffering as a result of these tax hikes. The taxes that remained between 4 and 20 percent were increased to 36 percent. This led to protests by professionals from various categories.
The Government has now excluded certain non-cash benefits from the taxes. But only a few will get any benefit from this as only a certain number of professionals in both State and private sectors enjoy such extra perks. Nevertheless, this is a good step that will provide some benefit to those who are entitled to such perks.”