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Editorial

Income tax a necessary evil

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Our front page lead story last Sunday, headlined “Cops join IRD to raise revenue,” scooped the news that the police has launched a new collaboration with the Inland Revenue Department (IRD) to track down unexplained wealth and chase black money. This, as our story explained, was a spin-off from the widely publicized cases involving Pastor (also called Prophet) Jerome Fernando who has still not returned to the country after the smelly stuff hit the fan and a lady named Thilini Priyamali, who had allegedly collected some Rs. 226 million entrusted to her for investment, no doubt at sky high interests rates. Her clients, including reportedly some yet unnamed politicians and others have not come forward to assist the investigation. This is most probably because they prefer not to discuss the sources of what appears to be black money.

Pastor Jerome, it has been reported, had spent as much as Rs. 12 billion on his miracle dome. This, by any standard, is very high expenditure involving big bucks. No doubt much of this cash was donated by well wishers abroad, whom he clearly does not lack. But such cash infusions are subject to various regulations and interest and other earnings from such funds, we believe, must be liable to tax. Thus it makes sense that while the police continue with criminal investigations as required, the Inland Revenue Department ensures that obligatory tax payments are made. Whether the two agencies have been hitherto sharing information with each other for the benefit of the tax exchequer, we do not know. But it is obvious that they should be. Our report referred to a “new collaboration” suggesting this was not part of the already established scheme of things.

It was reported last week that the parliamentary oversight committee for National Economic and Physical Planning examining the performance of the various agencies responsible for the collection of state revenue found they are way behind target. It is fairly well known that three departments, Inland Revenue, Customs and Excise are the big revenue collectors for the government. It is also known that corruption is widely prevalent in all three agencies.

Former Minister Mahindananda Aluthgamage who chairs the oversight committee went on record a few days ago saying that although a collection of over Rs. 3.1 billion this year had been set for these three departments, approximately only half this amount had been, collected up to now. Where the Inland Revenue Department is concerned, Aluthgamage made some startling disclosures, long suspected but without an official imprimatur. Among these he was reported in the state-controlled Daily News to have said that although there are over 105,000 companies in business, only 15,000 are taxpayers.

This is not all. The number of personal income tax files on the books of the IRD standing at 500,000 in a population of 22 million is dismally low. And of these only 31,000 pay personal income tax, it was claimed. The Daily News report said the number of personal tax files was down to 295,000 last year and this had further shrunk this year.

According to an Economy Next report we front page today there is just one taxpayer on the IRD books paying over Rs. 300 million annually as income tax. Most people would dearly love to know who this worthy is. That report also gave numbers of those taxpayers on the high end of the taxpayers list. Whether these figures are accurate or not, we do not know.. Hopefully the IRD will clarify.

It was not so long ago that the government announced that all persons above the age of 18-years must have a tax file. This is all pie in the sky. The IRD lacks the will, technology and the personnel to achieve this target – if it is indeed a target. Time was when the annual administration report of the Commissioner of Inland Revenue, now grandly titled Commissioner General, published a list of names of individuals penalized for tax offences. Several decades ago, one of these lists included the name of a lawyer who is now a cabinet minister! Administration reports issued annually by government departments now appear to be a matter of history. It would be a good thing if the practice of publishing such reports is revived.

A frequent complaint by the few taxpayers who meet their obligations is that the IRD has a weakness for squeezing already squeezed lemons – that is taxpayers already on file. While widespread evasion is rampant, people who are paying taxes are often harassed by the department. IRD once upon a time rewarded good taxpayers with privileges including the right to purchase a vehicle at reduced import duties.

Those goodies are now history. The Pay-As-You-Earn (PAYE) tax system and withholding tax (WHT) on dividends and interest was something which was easy to administer and must certainly have greatly helped collection. While steps have been taken over the years to raise taxable thresholds on individuals, these by no means have kept pace with inflation.

As is frequently said, the only certainties of life are taxes and death. Professionals have been stridently protesting about the recently increased income tax rates with some even claiming that this is part of the reason some of them are quitting the country. Lankans can legitimately say that the mileage they get for their tax rupees is not satisfactory. Income tax payers often think that they carry a vast tax burden that is not evenly distributed. That is not without truth but there is very little realization among well to do income tax payers that the poor pay a big part of the indirect taxes that flow into the state exchequer. As an old time editor of an English newspaper in then Ceylon once said, each time you strike a match or flush the toilet, you are paying a tax!



Editorial

Soaring mercury and need for caution

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Tuesday 7th July, 2026

A major El Niño event is developing rapidly, and it is expected to intensify in the coming weeks. Some climatologists are of the view that the unfolding El Niño may not impact Sri Lanka to the extent of triggering a nationwide catastrophe. This is certainly good news, but the possibility of El Niño causing drought, reduced monsoon rainfall and agricultural losses in this country cannot be ruled out.

Meanwhile, France is reeling from a record-breaking European heatwave, which has claimed more than 2,000 lives and left people scrambling for cooling devices in shops. It has been placed under a red heat alert. This situation cannot be directly attributed to the current El Niño, which has only aggravated it. The current heatwave is mainly due to climate change, which has caused hot air to be trapped over Europe, according to experts.

There are media reports of global temperatures rising across all regions, but at different rates of warming. All major land areas across the globe are getting warmer, the worst affected being the Arctic region (covering parts of northern Canada, Greenland, Russia, Alaska, and northern Europe), with faster increases reported from Europe and Asia. There is no need for panic, but prudence demands the formulation of strategies urgently to meet possible outcomes.

El Niño is unpredictable, and anything is possible, the worst-case scenario being prolonged drought and the resultant drop in agricultural production. In Sri Lanka, reservoirs run dry even during short dry spells, causing severe water stress.

Sri Lanka is no stranger to heatwaves, albeit not of the same severity as the ones in Europe at present. However, recent studies indicate increasing frequency and intensity of heatwaves. There have been several such events during the past seven years or so in this country, with the Department of Meteorology and the government issuing warnings of increased risks of heat stroke, heat exhaustion, and dehydration, especially among outdoor workers, children and elders. It may be recalled that according to media reports based on research findings, between 2001 and 2013, about 23% of Sri Lankans were exposed to dangerous heatwave conditions.

Besides, urban centres, such as Colombo, are experiencing the so-called urban heat island effect due to buildings, pavements, etc., retaining heat. Sri Lanka should seriously consider adopting the Miyawaki method, a Japanese technique of creating dense micro-forests or ‘pocket forests’ in small urban spaces to improve biodiversity, capture carbon, reduce urban heat and improve air quality. London has reportedly adopted this method successfully. The question is why the city of Colombo, accredited as an international Wetland City by the Ramsar Convention of Wetlands, and its suburbs have not adopted the Miyawaki method.

As for Sri Lanka, two main El Niño and climate change mitigating factors are said to be its geographical location and its central mountain range, which helps maintain atmospheric moisture, reducing the likelihood of severe droughts experienced in some other countries affected by El Niño. Hence, the need to conserve the country’s forest cover, which is unfortunately shrinking.

For Sri Lanka as well as other countries, deforestation is no longer an environmental issue; it is a serious existential problem as well. Sri Lanka’s forest cover is believed to be about 29-30% of the total land area. The government has set an ambitious target of increasing it up to 32% of the land area. The ongoing reforestation initiatives deserve fullest public cooperation.

Nothing is said to be so certain as the unexpected in climatic events; forecasts about them could go wrong. Therefore, the need for Sri Lanka to remain alert and have contingency plans to mitigate their impact cannot be overstated.

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Editorial

Zimbabwe, here we come?

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Monday 6th July, 2026

President Anura Kumara Dissanayake’s recent attempt in Parliament to defuse the ongoing controversy over his government’s plan to extend the retirement ages of the judges of the Supreme Court (SC) and the Court of Appeal (CA) has been in vain. He spoke at length, offering excuses for his failure to initiate action to fill judicial vacancies, but they did not sound convincing. They have only prompted the Bar Association of Sri Lanka (BASL) and other lawyers’ associations to reiterate their opposition to the prospect of a constitutional amendment being moved to raise the retirement ages of the SC and CA judges.

Addressing a public forum, on Saturday, BASL President Rajeev Amarasuriya reiterated his association’s opposition to the proposed move to change the SC and CA judges’ retirement ages arbitrarily. The BASL’s position has been endorsed by several legal associations, including the Colombo Law Society, the Colombo High Court Lawyers’ Association (CHCLA), LAWASIA, and the Commonwealth Lawyers’ Association (CLA).

CLA President Steven Thiru has gone to the extent of warning that Sri Lanka risks repeating Zimbabwe’s judicial crisis if it goes ahead with its controversial plan to extend the retirement ages of sitting superior court judges arbitrarily. Stating that the CLA did not object to the extension of the mandatory retirement age of judges, given changing demographic realities, Thiru pointed out that the danger lay in the politicised context and particularised application of the proposed move by the sitting executive and the legislature to alter the tenure of a few judges. He stated that Sri Lankan leaders had to heed “the sobering lesson of the Zimbabwean crisis; when a ruling government alters the rules of judicial longevity mid-stream, the damage to the legal fabric is severe. “If Sri Lanka proceeds with an ad hoc, non-transparent extension of Superior Court judges’ tenure without a broad consultative process, it risks plunging its legal system into a similar crisis of legitimacy,” he warned, noting that a structural policy matter must not be perceived as a personalised intervention; to do so would fundamentally invite public cynicism, compromise the appearance of judicial neutrality and shatter the very institutional stability that is to be protected.”

It is hoped that the JVP-NPP government will heed the concerns of lawyers’ associations, abandon its plan at issue and ensure that constitutional reforms follow proper consultation, without undermining judicial independence or public confidence in the judiciary. The JVP/NPP came to power promising a new Constitution and not politically motivated piecemeal constitutional amendments. It said in its election manifesto, inter alia, “A new constitution will be drafted and passed through a referendum with necessary changes, if any, after going through a public discourse” (A Thriving Nation: A Beautiful Life, 2024, p. 109).

As the CHCLA, in a letter to President Dissanayake, has rightly pointed out, “the Judicial Service of Sri Lanka is constituted by officers who ascend through a rigorous hierarchy … This progression is not merely a career ambition; it is a legitimate expectation, recognised and protected by the principles of natural justice and the law governing public service. Officers of the Judicial Service plan their professional and personal lives around the reasonable anticipation of such advancement.” The CHCLA’s views deserve serious consideration.

Meanwhile, Chief Justice Preethi Padman Surasena, addressing a group of newly recruited Magistrates, at Sri Lanka Judges’ Institute, recently, stressed the need for judicial officers to do their best to preserve public confidence in the judiciary. A country could be destroyed by a bad judiciary in the same way it could be devastated by natural disasters, the Chief Justice said, stressing the need to safeguard the integrity, independence and dignity of the judiciary. His message was loud and clear.

However, some factors that erode public confidence in the judiciary are beyond the control of judges. The alleged government move to extend the retirement ages of the judges of the SC and the CA is a case in point. It is widely seen as an instance of political interference with the judiciary. One can only hope that the Sr Lankan legal fraternity and international lawyers’ associations will be able to knock some sense into the JVP-NPP government, and prevent this country from facing the same fate as Zimbabwe, where a serious constitutional crisis erupted in 2021, when its Constitution was arbitrarily amended to change the judges’ retirement ages. That issue raised broader concerns about the separation of powers and judicial independence. The constitutional amendment undermined public confidence in courts and amounted to political interference with the judiciary. Another crisis is the last thing Sri Lanka needs at this juncture.

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Editorial

Income status: Reality and challenges

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The World Bank’s annual income reclassification, which takes effect every July 1, has placed Sri Lanka, Vietnam, the Philippines, Jordan and the Pacific state of Micronesia in the upper-middle income bracket.

Sri Lanka’s elevation to the upper-middle income status has gladdened many a heart. It is no mean achievement for a country emerging from a crippling economic crisis that led to foreign currency reserves woes, shortages, queues, prolonged power cuts, a steep rise in inflation, and unprecedented political upheavals. However, one should not lose sight of the fact that although the reclassification is a marker of resilience, Sri Lanka only narrowly crossed the threshold, according to economic analysts.

Sri Lanka will now face some challenges. The upper-middle income status generally indicates economic progress and can help improve investor confidence, which Sri Lanka perhaps needs more than anything else to rebuild its forex reserves and be ready to resume foreign debt repayment in earnest. However, a higher income category could reduce Sri Lanka’s access to concessional loans, grants and some forms of international assistance. Commercial borrowing generally carries higher interest rates and shorter repayment periods than concessional development loans.

Trade preference schemes such as the EU’s GSP and GSP+ have stood developing countries, such as Sri Lanka, in good stead. These trade concessions are based on specific eligibility criteria, not income classification alone, but moving into higher income categories can eventually affect eligibility under some preferential trade arrangements, as some economists have pointed out. There’s the rub.

The biggest challenge for Sri Lanka is to ensure that its economy will become more productive, competitive and resilient so that it can lessen its dependence on international assistance, with the help of sustainable growth and investment, as countries like Vietnam have done.

Policymakers should reflect on the state of the economy and ordinary Sri Lankans’ lot, which has not improved despite the country’s income classification upgrade. Such categorisations based on credible data may be technically sound and useful in making economic decisions, but they cannot be considered realistic and reliable yardsticks where the wealth distribution is concerned.

The upper-middle income status usually masks inequality. There are economic tools to gauge income inequality, which affects social stability, poverty levels, and access to education and healthcare, but they too have limitations. It is imperative that the issue of income inequality be addressed as a matter of national priority.

Sri Lanka faced an economic crisis in 2022, despite a previous income classification upgrade, mainly because it did not get its macroeconomic fundamentals right, and acted in a reckless manner. True, the Easter Sunday terror attacks and the Covid-19 epidemic took a heavy toll on the economy, but Sri Lanka would have been able to overcome their impact if its economic imperatives had not been subjugated to the political agenda of the government in power at that time.

If action had been taken to prevent a sharp drop in state revenue by keeping taxes at a realistic level and rationalising pandemic relief while seeking IMF assistance at the first signs of trouble, the economy may have been able to withstand internal and external shocks without going into a tailspin.

Sri Lanka should emulate Vietnam, whose income classification upgrade follows a different track and is a story of growth. Vietnam’s gross national income per capita exceeded the USD 4,636 threshold because of manufacturing export growth. Its GDP expanded at approximately 8 percent in 2025, driven by electronics and consumer goods assembly. Vietnam has reportedly set an ambitious goal of achieving the coveted high-income status by 2045. Sri Lanka, too, should raise the bar for itself and work towards achieving its economic goals.

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