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Wednesday, 4 April 2018 00:00 - - {{hitsCtrl.values.hits}}
By Ashwin Hemmathagama
The Inland Revenue Act No. 24 of 2017, which received House approval last October, sought to broaden the tax base, reduce the number of indirect taxes and simplify the overall tax structure, enabling the Government to increase the GDP which declined to 11.6% in 2014.
Despite the greater good the new Act will have on all Sri Lankans, many one-sided and fabricated news was circulated by certain media establishments and even some lawmakers have given a different picture to the country, according to Minister of Finance and Mass Media, Mangala Samaraweera. Setting the record straight, the Minister, while presenting 10 gazette notifications under the Commodity Levy Act for parliamentary approval, explained the basis of introducing a simple tax structure.
“The current direct and indirect tax disparity is absolutely unfavourable. Today, the direct taxes are paid by a fraction of the population. This can be considered the lowest in the world. In Malaysia 72% of taxes are charged through direct taxes and in India its 57%, Bangladesh 33%, but we in Sri Lanka are still at 18%. However, 88% of the taxes are charged through indirect taxes,” he said.
“The problem with indirect taxes is that even the millionaire pays the same taxes as the poor man in terms of purchasing essential commodities. I do agree that the Value Added Tax (VAT) is too high and it needs to be reduced. In order to reduce the VAT, we should reduce the tax disparity to at least 40%-60%. Such will allow us to gradually bring down VAT and other taxes, providing relief to the people,” he added.
According to the Minister, Sri Lanka should turn around the GDP, which went down to 11.6% in 2014 to have a better economy. He believes the improved taxes will enable the country to reduce its debt burden while shouldering essential areas including health and education.
“To achieve a revenue increase by increasing the share of direct taxes from 18% to 40% to create a more progressive tax structure, broaden the tax base to bring in the informal economy into the formal sector. This would create a level playing field by ensuring that everyone complies and shares the burden of taxes, reduces discretion in tax policy and shifts to a simple transparent rules-based structure and in the future the minister would not be able to change the rules and regulations according to the whims and fancies of those in power,” the Minister explained, highlighting the importance of a tax system preventing politicians from granting tax relief to their kith and kin as they please to suit their whims and fancies. Under this new system, the Minister explained that those who earn Rs. 1.2 million or lesser per annum would not be taxed.
“Foreign remittances of persons working abroad are not taxable. Only those who earn above a certain amount will be taxed. Up to Rs. 15 million from cervices rendered to persons outside Sri Lanka is exempted from tax. Further, pensioners have been totally exempted from taxes, but if their interest is over Rs. 1.5 million per year (over Rs. 125,000 per month) it will be subjected to a withholding tax. If a pensioner is to gain an income of Rs. 1.5 million per year, he should have an investment of Rs. 20 million. Hence, this tax will not affect 95% of the pensioners,” he said.
“We have taken away the power to decide on the tax from the minister and incorporated it into an Act in a methodical manner. However, many have expressed warped and false claims regarding the taxation system. Rumours are spread that capital gains tax is at 10% on the sale price but this is not true. This tax is applicable on the gain derived from the sale of an extra land or house and the sale price is seen as a cost,” he added, refuting claims that the sale of a vehicle was subject to capital gains tax, adding that “this is again an absolute lie and capital gains tax is applicable only to the sale of lands, buildings and securities.”
