Impact of personal income tax on the economy
The Personal Income Taxation introduced from January 1, 2023 would adversely affect the livelihood of the working-class people who are the backbone of our economy.
In today’s context when the cost of living has skyrocketed and families are struggling to make ends meet, reducing the tax-free allowance to a mere Rs. 100,000 per month and increasing tax rates from 6 per cent to 36 per cent on slabs of Rs. 500,000 is preposterous. These changes have resulted in a mass exodus of doctors, engineers, university professors, white collar and skilled workers. The exodus has affected major sectors and businesses are scaling down/closing their operations.
Taxing people at source is an easy form of collecting taxes. It is most unjust to use this mandatory collection on the working-class people who are struggling to make a living when a large number of high-net-worth individuals which include professionals, blatantly evade paying taxes either by not having tax files or by not declaring their full income.
Withholding Tax on interest should be fixed and not an advance payment of tax. It is most unlikely that deposit holders who do not have tax files will open a file and pay the additional tax. It would be more beneficial to raise the Withholding Tax rates and make it a final tax. Furthermore, what is the rationale for non-resident Sri Lankans’ interest income on their Rupee deposits being allowed to set off the 5 per cent Withholding Tax as final tax? Similarly, non-resident Sri Lankans are also entitled to set off Withholding Tax of 10 per cent as final tax on rental income from their Sri Lankan properties. It is most unjust that Sri Lankan residents have to pay taxes which may go up to 36 per cent when non-resident Sri Lankans pay lower tax on the same sources of income.
All citizens should be entitled to have a reasonable tax-free income and income tax rates and tax slabs that are sustainable. If every Sri Lankan pays his/her taxes, tax rates could come down. It may be advisable to appoint tax advisors, who have tax files and pay their due taxes to the State, as only then would a fair and equitable tax regime be introduced.
Finally, a sincere appeal to the authorities to take immediate steps to make changes to the Inland Revenue Amendment Act 2022 in order to stop the brain drain which will cause a contraction of the economy.
Concerned Chartered Accountant Colombo
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