Lanka’s private sector professionals up in arms against new PAYE tax
Sri Lanka’s private sector professionals are set to lose a large portion of their take-home pay after a PAYE tax hike to 24 per cent from 16 per cent came into effect on April 1 prompting them to find greener pastures in foreign countries, a recent CEO’s forum in Colombo revealed.
An appeal calling on the government to withdraw the 2018 budget proposal of increasing the PAYE tax by 8 per cent has already been made in a letter sent to the President, several top officials serving in leading firms in the country told the Business Times.
They warned that the country’s public sector will collapse as a result of the impending dearth of professionals heading the business entities due to migration of top management personnel for overseas jobs in countries like New Zealand, Australia, West Asia and the African region.
Chief Executive Officers (CEO’s), Chief Financial Officers (CFOs), Chief Administrative Officers (CAOs), top level accountants, and senior executives as well as senior managers and technical officers, etc will be taxed at 24 per cent of their take-home pay following the imposition of the new PAYE tax, Inland Revenue Service Union Joint Secretary H.A.L. Udayasiri, told the Business Times.
He said that the increase in tax revenue was the aim of this move of the government, but it should also consider the grievances of a handful of taxpayers before burdening them with heavy taxes as the cost of living is sky rocketing alarmingly.
Although PAYE tax rates will increase for individuals with high incomes (monthly income of more than Rs. 300,000), the number of taxpayers with such high incomes is low, he said adding that the revenue will be decreased as a result.
One reason for the decrease in tax revenue was the higher threshold at which individuals are taxed, he claimed.
Less people pay taxes due to the higher threshold and the new tax regime has also removed concessions given in the earlier tax regime which provided a lower tax rate for professionals, he disclosed.
Taxpayers will be burdened with new taxes and the government will lose, not gain, revenue till tax officials familiarise themselves with the new law and procedures, he added.
“Tax Department trade unions will be taking up the matter with the President. If that fails, we’ll have to take to the streets,” he said.
Under the new tax regime the annual tax free threshold for PAYE tax has been increased to Rs. 1.2 million from Rs. 750,000, a senior tax consultant told the Business Times.
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.1,200,000 is tax exempt, and every subsequent Rs. 600,000 earned is taxed at 4, 8.12, 16, 20 per cent upto a maximum of 24 per cent.
Citing an example he noted that, the tax rate of a person with an annual income of Rs. 1.5 million is 8 per cent previously but with the new tax regime it will be only 4 per cent.
The Rs. 50,000 tax free vehicle allowance which was there prior to the budget has now been made liable to PAYE, a CEO of a leading company said adding that any private sector official having a company vehicle will have to pay an additional sum of money as PAYE tax.
Until April 1 2018 the first vehicle was exempted from the tax. But now they will consider it for taxation, he claimed.
Under the old rates a person earning Rs.100,000 and a transport allowance of Rs.50,000 had to pay Rs. 1500 as taxes. A transport allowance of up to Rs. 50,000 for a car and petrol was tax free.
Under the new tax rates, the employee deemed to be earning Rs. 150,000 will be taxed at Rs.2000 a month while a person earning Rs. 150,000 and a transport allowance of Rs. 50,000 would be taxed Rs. 5,501 a month.
Further, the Inland Revenue Department has released a circular to consider non cash benefits (vehicle, driver and fuel) to add it to the salary before calculating PAYE.
These measures had led to the frustration of private sector professionals which prompted them to leave the country for greener pastures and it will disturb the smooth functions of the private sector, he said.
At least an average of 40 senior executives are entrusted with the task of managing a corporate with around 1300 employees, he said pointing out if the majority of them leaves the entity then it well collapse.
On the other hand it is difficult to recruit competent senior managers with required skills as the present education system is not producing personnel to suit the job market.