Granting tax concessions: How to face the danger of decreased Govt. revenue | Sunday Observer

Granting tax concessions: How to face the danger of decreased Govt. revenue

12 February, 2023

The decision by former President Gotabaya Rajapaksa to abolish the PAYE taxes and introduce huge tax cuts in 2019 was slammed at the time. When Sri Lanka was hit with the economic crisis, last year’s Government revenue as a percentage of the Gross Domestic Product (GDP) dropped to 8.3 percent. Accordingly, going by International Monetary Fund (IMF) proposals the Government has now re-imposed the PAYE tax on all those earning above Rs. 100, 000 a month.

Delivering the Government’s Policy Statement at the opening of the Fourth Session of the Ninth Parliament, President Ranil Wickremesinghe claimed abolishing the PAYE tax as demanded by professionals and Opposition parties will cause the country to lose Rs. 100 billion in revenue and if the threshold is increased to Rs. 200 000 it would lose Rs. 63 billion. The Sunday Observer spoke to several politicians from different parties that have been somewhat critical of the Government’s recently implemented tax regime to elicit their opinions on this important issue. We asked the following questions from the politicians featured in this interview.

1. Will your party reduce taxes if it comes into power?

2. How will you face the challenge of the drop in Government revenue after giving tax cuts to the people?

3. According to your party’s economic policy what sort of tax relief will the State and private sector employees receive?

4. Is there a way to run a Government without imposing taxes?

Samagi Jana Balawegaya MP Eran Wickramaratne

1. Government revenue must be increased. Last year it dropped to 8.3 percent of the GDP. In 2015 when we came into power it was 10 percent and we increased it to 13 percent. But due to bad management food inflation rose to 100 percent though it has reduced somewhat since then. The inflation itself has become a tax. The value of one’s earnings has halved. While Government revenue must increase, who can the Government extract it from? If the threshold is brought lower, people will become destitute. The high earners will have to be taxed but I will not go into numbers now.

2. There are many ways to generate Government revenue.

3. The President has claimed that if the threshold is increased to Rs. 200,000 the Government would lose Rs. 63 billion. But there must be a scientific basis for such decisions. President Rajapaksa abolished the tax regime introduced by us in just one day. We lost Rs. 600 billion in less than one year and we became bankrupt. Now Wickremesinghe claims we will lose Rs. 63 billion. I do not trust his numbers. He must present the correct data. Even if the taxable threshold is brought to Rs. 200,000 the Government will not lose revenue as quoted by him. The threshold must be increased and those who earn more must be taxed more.

4. Between 2015 - 2019 the deficit was compensated by focusing on revenue. But currently we are in a crisis. Therefore we must look into revenue and expenditure both. This Government said nothing about taxes. The President has no proposal. For 69 years since independence our expenditure has been higher than our revenue. Therefore bankruptcy was inevitable. Taxes must be levied. Twenty-two Government institutions have lost Rs 800 billion. Therefore, this problem cannot be solved by only focusing on income.

Leader of the Freedom People’s Congress MP Dullas Alahapperuma

1. There must be transparency about not only reducing taxes but also about how taxes are spent. This is not the case in our country. That is why migrant workers do not send money into the country. Under our Government the people will be given an assurance on how their money will be spent. Taxes must be fair but this tax regime is not. If those who contribute most to the economy get discouraged the economy will collapse further. This is what is happening now. We will change the tax regime that will encourage investors to invest.

2. This challenge must be faced and its causes understood. Many reasons have led to this issue. Why did foreign exporters deposit their money in other accounts? We can’t blame them. These deficiencies should be identified.

3. It is fair to revise this limit to Rs. 200,000. But it will have to include some relief and methods to prevent any tax frauds. The Government will be able to earn the necessary taxes through this. But this tax applies to the entire salary including allowances and benefits. This is unfair.

4. No one is saying no to taxes. A welfare State cannot exist without taxes. But it must have the basic qualities. The tax on dogs was the most draconian tax in our country. This new tax regime is only second to that.

General Secretary of the Janatha Vimukthi Peramuna Tilvin Silva

1. Our tax regime is incorrect and complicated. It must be simplified and made bearable. We will simplify it under our rule and ensure the people can bear these taxes. The current PAYE tax is extremely unfair. The people are under great stress. Therefore it must be changed.

2. In the recent past tax breaks were given to thieves. Even today tax breaks are being given to cohorts in an unfair manner. The people are left to bear this burden. Production and businesses must be revived and they must be provided with some relief and benefits. Tax revenue will not decrease if it is fairly levied. Issues will only arise if you give tax cuts to various persons and by burdening the common folk. The Government can earn significant revenue if everyone is taxed fairly and it controls its unnecessary expenditure.

3. The taxable threshold must be discussed with institutions levying taxes and dealing with State revenue before being decided. The threshold of Rs. 100,000 and how it can be changed can only be announced after discussing with economic experts. Today a person earning Rs. 100,000 pays one third of his salary as taxes. This will result in professionals leaving the country. In the end not only will the Government lose revenue but the country will also lose valuable academics and professionals. We will not make such ignorant decisions. The Rs. 100,000 threshold must change and the tax must be bearable.

4. A Government must impose taxes. We have never said no to taxes. It is unavoidable. But the question is who must taxes be levied on and how much. If the taxes are simple and fair, Government revenue will increase. If the money is in turn invested in the people while wastage and corruption is reduced the people will voluntarily pay taxes.

Tamil Progressive Alliance MP Mano Ganesan

1. Taxes are necessary for a Government to function. It is not realistic to claim that under our Government we would not impose taxes. But a Government has a responsibility to consider the plight of low income earners and those in unfortunate circumstances when imposing taxes.

2. A people friendly Government must increase indirect taxes and reduce direct taxes. A tax is added to items we purchase. The same tax is applied to all regardless of whether they are rich or poor. This is unfair. One must be taxed according to what he or she earns. We must implement such a plan.

Professionals must also be paid salaries that are worth their time and effort. If they do not have an income how can they pay taxes? All citizens must get electricity, transport, water and other facilities at low rates. Those who earn more can obtain these services at a higher rate. We cannot leave low income earners destitute.

3. This Rs. 100,000 threshold must be changed. The amount does not have the same value it did as 10 years ago. The taxable threshold must be decided based on inflation. But since it is ever changing it is difficult to ascertain at once. Logical decision-making is the responsibility of pro-people intelligent rulers. The tax system should be adjusted so that the country’s regime does not collapse and the poor will be protected.

4. A Government cannot function without taxes. But this must be monitored periodically. Around 200,000 people are Samurdhi beneficiaries. But there are issues in compiling these lists. Some who need help do not get it. This is a crime. For Samurdhi, the low income earners should be identified in a scientific manner on the basis of the electricity bill.