Registered tax files 500,000, only 31,000 pay personal tax

Proposed amendments to Sri Lanka’s Inland Revenue Act will serve to address purported under performance of Inland Revenue Department (IRD) officials in a bid to enhance income tax collection, Government MP Mahindananda Aluthgamage said, noting that there is only one person in the country who pays taxes in excess of 300 million rupees.

Aluthgamage, a former minister and government MP who chairs the Sectoral Oversight Committee on National Economic and Physical Planning, told press conference on Thursday (Aug. 17) that the Inland Revenue Amendment Bill, once passed in parliament, will enable robust measures to address the issue.

The objective is to make formidable decisions regarding officials not contributing effectively to the state’s tax revenue enhancement, a statement from the president’s media division (PMD) quoted Aluthgamage as saying.

“There’s only one person in Sri Lanka who pays more than 300 million rupees in tax. Only three people between 50 million and 100 million rupees; only 16 people between 25 and 50 million;

One hundred and thirty seven between five and 10 million; 508 between two and five million; 804 between one and two million, and 5,473 between 500,000 and one million rupees,” he said.

The MP said Sri Lanka is still behind on a condition imposed by the International Monetary Fund (IMF) in exchange for a bailout package to increase state revenue.

“We’re trying to reach that target. The government will have to take some unpopular measures,” he said.

“Instead of taxing the small man on his salary, state revenue can be increased by taxing those who should be taxed,” he said, noting that the IRD is owed 904 billion rupees in tax collection.

An immediate overhaul of the nation’s tax policy is imperative, the PMD quoted Aluthgamage as saying.A substantial burden rests on the Inland Revenue Department, tasked with collecting the 904 billion rupees in taxes.

He said that Sri Lanka is the only country in the world permitting four tax appeals and it would take a “staggering” 15 years to dispose of these appeals.Speaking at a meeting of the committee he chairs on July 06, Aluthgamage said only 31,000 Sri Lankans out of some 500,000 persons with registered income tax files pay personal income tax while 328 registered limited companies out of 105,000 contribute to 82 percent of tax revenue.

Sri Lanka has been compelled to increase its tax revenue in the wake of the 2022 currency crisis, the worst in decades, and the subsequent agreement with the IMF over a 2.9 billion dollar extended fund facility. However, resistance to a hike in progressive personal income tax has been high, with many high-income earning professionals in the state sector holding a number of protests against the increase.

Value added taxes were also raised to 15 percent from eight percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.

The IMF had reportedly asked the cash strapped Sri Lankan government to impose taxes on all who receive monthly income of above 41,667 rupees as a prior condition for the bailout, butPresident Ranil Wickremesinghe’s administration had instead imposed a Pay As You Earn (PAYE) tax on everyone who earns over 100,000 rupees a month.

The IMF has defended the tax hike, arguing that creditors and investors will not support Sri Lanka because tax to GDP had fallen steeply. Taxes, including value added taxes were slashed in 2019 December to target a ‘persistent output gap’, after serial currency crises from flexible inflation targeting reduced growth. (Economy Next)