Bureaucratic red tape forces staggering 28 % tax on EPF
Sri Lanka’s Employees Provident Fund (EPF) is now compelled to pay a staggering 28 per cent tax in accordance with a clause in the new Inland Revenue Act and also proposed in the 2017 budget as it has not been waived off by the government, trade union leaders alleged.
The 14 per cent tax on income and 14 per cent withholding tax have been imposed on EPF under this set up and it has to pay a colossal sum of Rs.30 billion for the tax assessment year ending March 31 2018, a senior tax official told the Business Times.
The Treasury has to issue a circular to the Inland Revenue Department, the Central Bank and the Labour Ministry if a decision had been taken to withdraw the 2017 budget proposal, he added.
The Business Times reliably learned that the Central Bank has written to the Treasury inquiring its stance on this matter as the new taxation will affect the interest rate of EPF money of private sector employees.
President of the Inter-company employees union Wasantha Samarasinghe told the Business Times that the entire private sector was in a dilemma over the government’s move and expected a clear statement from the authorities relating to this matter.
He noted that the interest rate of EPF benefits of around 2.6 million employees will come down to 9 per cent from 10.5 per cent at present.
Countrywide agitation campaigns will be organised commencing next week if the government fails to withdraw the high taxation on EPF soon, he warned.
The taxing on EPF money was highly unreasonable as private sector employees were solely dependent on their EPF benefits for the rest of their lives after retirement, he pointed out.
The government has legal provisions to impose a 10 per cent tax on the EPF, which had not been levied so far.
Free Trade Zones and General Services Employees Union Joint Secretary Anton Marcus noted that former Labour Minister W.D.J. Seneviratne and former Finance Minister Ravi Karunanayake had given an assurance to trade unions earlier that they will withdraw the clause in the Inland Revenue Act imposing 14 per cent tax on EPF and ETF.
The proposal was also included in the 2017 budget as well, he said adding that trade unions have opposed to this move vehemently at several Labour Advisory Council meetings last year and the authorities assured that they will not go ahead with this move but no action has been taken as yet.
Mr. Marcus told the Business Times that they will take up this matter at the next Labour Advisory Council meeting to be held on July 6.
However a senior Treasury official without elaborating the matter noted that all pension funds, including the EPF, above a total lump sum payout of Rs. 2 million will be subjected to taxes of 5 to 10 per cent.
Almost all other payments, including employee compensation, termination allowances and other imbursements will also be taxed, he added.