Government servants cry foul over taxing allowances
Sri Lanka’s top bureaucrats have blasted the government’s imposition of Pay-as-You-Earn Tax (PAYE) on their all inclusive salary including allowances granted to them for expenses as part of performing their job.
According to the new Inland Revenue Act (IRA), employees will have to pay a higher level of taxes on employment income with the maximum rate increasing to 24 per cent from 16 per cent with effect from April 1.
Taxing of allowances specially granted to meet expenses exclusively incurred in the performance of official duties of public servants was highly unjustifiable, several senior Sri Lanka Administrative (SLAS) officials told the Business Times.
This tax is imposed on telephone bill payments, and allowances granted for official housing facilities, fuel for official traveling, transport, entertainment, as well as payment for the driver.
“Taxing housing facilities given specially for divisional secretaries was unbecoming as the relevant officials are compelled to rent or lease a house in the respective authoritative area under the regulations,” one official pointed out.
Several state institutions such as the Central Bank, state banks, Ceylon Electricity Board, Ceylon Petroleum Corporation were violating the Inland Revenue Act and the principle of equal treatment by paying the PAYE tax of employees.
PAYE is meant to be paid by the employee and not by the employer, he said adding that all these issues had been brought to the notice of the President, the Prime Minister and the Finance Minister.
If the government fails to remedy this situation, senior public sector officials will have no other option other than resorting to work stoppage collectively paralysing the government service, he warned.
Amid pressure from top government servants, the government is mulling a revision to the advance income tax deduction from salaries of officials, after the new IRA increased PAYE tax by including allowances, presidential secretariat sources said.
The Finance Ministry will issue new circular granting some tax relief for the affected senior officials soon after getting the approval from the cabinet, a top treasury official revealed.
Of the 1.1 million public sector employees, 2.2 per cent have fallen in the category of “Legislators, Senior Officers and Managers” who are drawing monthly salaries ranging from Rs. 63,000 to Rs. 150,000 without allowances.
According to official statistics, their monthly minimum transport allowance was around Rs.50,000 and the payment for telephone bills Rs 20,000.
Under the new tax rates, the employee who is earning Rs. 150,000 will be taxed at Rs. 2000 a month.
The tax on an employee earning Rs. 150,000 and a transport allowance of Rs. 50,000 would be Rs. 6,050 a month.
If a public official is in the Rs. 350,000 income range, then they will have pay 24 per cent tax, the official said.
Under the previous tax regime, the first Rs. 750,000 is tax free, the next Rs. 500,000 is taxed at 4 per cent and every subsequent Rs. 500,000 earned is taxed at 8 and 12 per cent, till a maximum tax rate of 16 per cent is reached, he disclosed.
With the new tax regime, the first Rs.1.2 million is tax exempt, and every subsequent Rs. 600,000 earned is taxed at 4, 8, 12, 16, and 20 per cent up to a maximum of 24 per cent.
Up to about 100,000 rupees there would not be a big change in the tax liability as the tax free threshold has been raised to Rs.100,000 rupees a month from Rs. 62,500.
The tax-free status for government servants was granted in 1979 to compensate for the unattractive salaries compared to the private sector, and to stop the drain of talent from the public service to foreign countries, and to the private sector during late President J.R. Jayawardena’s tenure.
It was re-introduced after 33 years in the 2011 budget which has resorted to its first tax reforms from April 1 under the Rajapaksa regime.