Own your taxes

“Taxation without representation” is a phrase used to describe being subjected to taxes without having a legislative say in the government imposing the tax. In the United States the phrase has its roots in the colonial period when colonists were angered by the British Parliament imposing taxes on them while the colonists themselves had no representatives in Parliament. 

Despite being a democracy with universal franchise for the last 90 years, Sri Lankans are finally waking up to the reality that they have had little say in their money being utilised by their elected representatives. As personal income taxes increase and the individual feels the pinch of their hard-earned money being taken by the State, the need to hold elected officials responsible for the Republic’s finances becomes even more necessary.

The Government has introduced a revised tax regime which came into effect from 1 January 2023 that increased personal income tax. Those in the private sector had a taste of this policy with their January salaries which were subjected to direct taxation. Many have expressed their displeasure over what they see as an unjust taxation on their hard earned salaries, especially at a time of economic hardships.

Taxes are the most important revenue source for the Government, contributing nearly 90% of the total revenue. The tax revenue to GDP ratio is around 8% today. The best this figure had reached was 15.8% in 2015. Either way this tax to GDP rate is one of the lowest among the upper-middle income earning countries. Therefore increasing taxes, in a reasonable manner was a prudent decision by the Government. The opening of a tax file to every adult citizen is also an important proposal. Irrespective of the tax bracket or whether an individual pays taxes or not by doing so a citizen is given ownership of the Republic’s finances. In this regard Singapore is a fine example where even the lowest income earners are taxed at a very nominal one percent of their income. In contrast Sri Lanka has depended on indirect taxes slapped on goods and services across the board which has diluted the ownership of the citizens on what is done with their “tax money.”

This difficult pill of generating taxes can be made less bitter to swallow if there is transparency in Government expenditure. The large Cabinet of Ministers, numerous ministries and Government institutions that do not demonstrate value for money for the expenditure incurred create increasing resentment among the public. In addition, the elected leaders have shown little signs of austerity in expenditure during these difficult times. There will also be less resentment for increases in taxes if the Government addresses the issue of corruption. The same individuals who were the perpetrators, enablers and beneficiaries of these corrupt dealings during the Rajapaksa administration now continue in positions of power in the Wickremesinghe administration. It is appalling to note that President Wickremesinghe has among his cabinet of ministers those who have been not only been accused but committed in courts of law for financial crime.

These are while personal income tax increases are difficult to bear for many, especially during these difficult economic times the resentment for such necessary moves could be minimised if the Government demonstrates that the revenue generated through the taxes are utilised in the best possible manner. Transparency and addressing the epidemic of corruption within the Government ranks are critical to ensure that taxes can be increased, revenue generated without creating resentment and social unrest.